House Prices and Bubbles in New Zealand
Curtin University of Technology - Curtin Business School - Bentley Campus; University of Aberdeen - Business School
University of Geneva - Graduate School of Business (HEC-Geneva); University of Aberdeen - Business School; Swiss Finance Institute
University of Otago - Department of Finance and Quantitative Analysis
Journal of Real Estate Finance and Economics, Vol. 37, No. 1, 2008
This paper studies actual (real) house prices relative to fundamental (real) house values in New Zealand for the period 1970-2005. Utilizing a dynamic present value model, we find disparities between actual and fundamental house prices in the early 1970s and 1980s and from 2000 to date. We model the bubble component that is related to fundamentals (the intrinsic component), making it possible to highlight whether a bubble still exists after that component is accounted for. We then analyze any remaining bubble to detect any momentum behavior. Much of the overvaluation of the housing market is found to be due to price dynamics rather than an overreaction to fundamentals.
Keywords: real house prices, real disposable income, fundamentals, present value, time-varying risk, bubbles
JEL Classification: G12, R31, G18Accepted Paper Series
Date posted: November 4, 2007
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