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House Price Efficiency: Expectations, Sales, Symmetry

Arthur Grimes (), Andrew Aitken () and Suzi Kerr ()

Urban/Regional from University Library of Munich, Germany

Abstract: An efficient housing market is of critical importance for individual welfare and for a well-functioning economy. We test the efficiency of this market by estimating the factors that determine both the long-run and the dynamic paths of regional house prices. Our tests use a new quarterly regional panel data set covering the 14 regions of New Zealand from 1981 to 2002. The tests indicate that regional housing markets converge to an equilibrium consistent with consumer optimising conditions, and hence with long-run efficiency. However, some conditions required for short-run (dynamic) efficiency are violated. We find that extrapolative price expectations, based on past regional phenomena, lead to overshooting of house prices in response to new region-specific information. We also find that price dynamics are influenced by past regional house sales activity and that the dynamic adjustment process is asymmetric depending on whether house prices are above or below their long-run equilibrium.

Keywords: House prices; housing appreciation; housing market; adjustment dynamics (search for similar items in EconPapers)
JEL-codes: G14 R21 R31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-geo and nep-ure
Date: 2004-08-02
Note: Type of Document - pdf; pages: 48
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpur:0408001

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