Bubbles and Crashes in the Australian Residential Property Market

40 Pages Posted: 9 Oct 2016 Last revised: 3 May 2017

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Richard A. Heaney

University of Western Australia

Date Written: May 4, 2017

Abstract

This paper analyzes the evolution of Australian property prices, the relationships between cities, houses and units, the stock market and monetary policy. Using monthly house and unit prices for all eight capital cities we identify extended periods of explosive positive price changes followed by comparatively small corrections and no crashes. A comparison with Australian equity prices further reveals that the average risk and return are more favorable in the housing market emphasizing fundamental differences of the two markets such as liquidity and short-sale constraints. We also find evidence for financial contagion from the equity market to the housing market. A Vector Autoregression (VAR) shows that house price changes have a relatively strong effect on cash rate changes and thus monetary policy. The relative stability of Australian property prices over the last 20 years suggests that policy makers played a role by providing an accommodating environment.

Keywords: Australian housing market, bubbles, crashes; contagion, diversification

JEL Classification: C22, C58, E40, E58, G1, R3

Suggested Citation

Baur, Dirk G. and Heaney, Richard A., Bubbles and Crashes in the Australian Residential Property Market (May 4, 2017). Available at SSRN: https://ssrn.com/abstract=2849709 or http://dx.doi.org/10.2139/ssrn.2849709

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Richard A. Heaney

University of Western Australia ( email )

Crawley
Perth, Western Australia 6009
Australia
0414700799 (Phone)

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