Univariate Analysis Of Seasonal Variations In Building Approvals For New Houses: Evidence From Australia

The paper examines the impact of seasonal influences on Australian housing approvals, represented by the State of Victoria building approvals for new houses (BANHs), with the generic objective of enhancing the practice of modelling housing variables. The paper focuses on BANHs as they are seen as a leading indicator of investment and as such the general level of economic activity and employment. In particular, the paper seeks to cast some additional light on modelling the seasonal behaviour of BANHs by: (i) establishing the presence, or otherwise, of seasonality in Victorian BANHs; (ii) if present, ascertaining is it deterministic or stochastic; (iii) determining out of sample forecasting capabilities of the considered modelling specifications; and (iv) speculating on possible interpretation of results. To do so the paper utilises a basic structural time series model of Harwey (1989). Modelling results confirm that the modelling specification allowing for stochastic trend and deterministic seasonality performs best in terms of diagnostic tests and goodness of fit measures. The observed seasonality could be attributed to the ësummer holidaysí and ëthe end of financial yearí seasonal effects.The analysis of out of sample forecasting power of the considered models reveals that the models with deterministic seasonal specification exhibit superior forecasting capabilities. The paper also demonstrates that if time series are characterised by stochastic trend or seasonality or both then a modelling approach solely based on the assumption of deterministic trend and deterministic seasonality would not identify seasonality in time series.