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

December 1, 2010

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Format: Chicago

Shengzu Wang, and Patrizia Tumbarello. What Drives House Prices in Australia? A+L4584 Cross-Country Approach, (USA: International Monetary Fund, 2010) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Asset prices, Balance of payments, Capital inflows, Housing, Housing prices, International trade, National accounts, Prices, Terms of trade

Keywords: Asset prices, Australia, Australia and New Zealand, Canada, Capital inflows, Cointegration, Correction in Australia, Error correction term, Event analysis, House price, House price overvaluation, House prices, Housing, Housing prices, Price, Terms of trade, Terms of trade episode, Terms of trade shock, Trend terms of trade, VECM, WP

Publication Details

Pages:

24
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/291
Stock No:

WPIEA2010291
ISBN:

9781455211722
ISSN:

1018-5941

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