Explaining House Prices in Australia: 1970-2003

8 Pages Posted: 3 Sep 2005

See all articles by Peter Abelson

Peter Abelson

Macquarie University

Roselyne Joyeux

Macquarie University - Department of Economics; Financial Research Network (FIRN); Macquarie University, Macquarie Business School

George Milunovich

Macquarie University - Department of Economics; Macquarie University, Macquarie Business School

Demi Chung

Macquarie University - Department of Economics

Abstract

This paper aims to explain changes in real house prices in Australia from 1970 to 2003. We develop and estimate a long-run equilibrium model that shows the real long-run economic determinants of house prices and a short-run asymmetric error correction model to represent house price changes in the short run. We find that, in the long run, real house prices are determined significantly and positively by real disposable income and the consumer price index. They are also determined significantly and negatively by the unemployment rate, real mortgage rates, equity prices and the housing stock. Employing our short-run asymmetric error correction model, we find that there are significant lags in adjustment to equilibrium. When real house prices are rising at more than 2 per cent per annum, the housing market adjusts to equilibrium in approximately four quarters. When real house prices are static or falling, the adjustment process takes six quarters.

Suggested Citation

Abelson, Peter and Joyeux, Roselyne and Milunovich, George and Chung, Demi, Explaining House Prices in Australia: 1970-2003. Economic Record, Vol. 81, No. S1, pp. S96-S103, August 2005, Available at SSRN: https://ssrn.com/abstract=783226

Peter Abelson (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Roselyne Joyeux

Macquarie University - Department of Economics ( email )

Sydney NSW 2109
Australia

Financial Research Network (FIRN)

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

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

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

George Milunovich

Macquarie University - Department of Economics ( email )

Sydney NSW 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Demi Chung

Macquarie University - Department of Economics

Sydney NSW 2109
Australia

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