What Drives House Prices in Australia? A+L4584 Cross-Country Approach

Shengzu Wang and Patrizia Tumbarello

No 2010/291, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the factors driving house prices in Australia from a cross-country perspective using several approaches. It uses a cointegration technique to estimate the long-run equilibrium house prices in Australia, New Zealand, and Canada and assesses the extent of a possible disequilibrium. It also presents an event analysis to shed some light on the link between house prices, capital inflows and the terms of trade. The econometric analysis suggests an overvaluation of 5-10 percent depending on the model specification. Event analysis indicates that terms of trade shocks were associated with larger increases in house prices in Australia, than in the case of strong capital inflow episodes.

Keywords: WP; house price; price; Australia; Canada; House prices; cointegration; VECM; event analysis; capital inflows; terms of trade; error correction term; terms of trade shock; correction in Australia; trend terms of trade; terms of trade episode; house price overvaluation; Housing prices; Asset prices; Housing; Australia and New Zealand (search for similar items in EconPapers)
Pages: 24
Date: 2010-12-01
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Citations: View citations in EconPapers (10)

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