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House Prices, Non-Fundamental Components and Interstate Spillovers: The Australian Experience

Author

Listed:
  • Greg Costello

    (Curtin University of Technology)

  • Patricia Fraser

    (Curtin University of Technology)

  • Nicolaas Groenewold

    (UWA Business School, The University of Western Australia)

Abstract

Using Australian capital city data from 1984Q3-2008Q2, this paper utilizes a dynamic present value model within a VAR framework to construct time series of house prices depicting what aggregate house prices should be given expectations of future real disposable income – the ‘fundamental price’ – and continues by comparing capital city fundamental prices with actual prices. The extent to which revealed capital city ‘non-fundamental’ components spillover from state to state, as well as their long-term impact is also investigated. Results provide evidence of periods of sustained deviations of house prices from values warranted by income for all state capitals with the greatest deviations arising in the NSW market and starting around 2000. In general NSW is relatively more susceptible to spillovers transmitted from other states while ACT and WA are most isolated from the rest of the country.

Suggested Citation

  • Greg Costello & Patricia Fraser & Nicolaas Groenewold, 2010. "House Prices, Non-Fundamental Components and Interstate Spillovers: The Australian Experience," Economics Discussion / Working Papers 10-06, The University of Western Australia, Department of Economics.
    • Handle: RePEc:uwa:wpaper:10-06
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    File URL: https://www.business.uwa.edu.au/__data/assets/pdf_file/0011/888086/10-06_House_Prices,_Non_Fundamental_Components_and_Interstate_Spillovers_-_The_Australian_Experience.pdf
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    References listed on IDEAS

    as
    1. Peter Abelson & Roselyne Joyeux & George Milunovich & Demi Chung, 2005. "Explaining House Prices in Australia: 1970–2003," The Economic Record, The Economic Society of Australia, vol. 81(s1), pages 96-103, August.
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    Keywords

    house prices; present value model; house price fundamentals; house price-income ratio; VAR/VEC modelling;
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