Is the Australian housing market in a bubble?

Abstract

Purpose This paper aims to explore principal drivers affecting prices in the Australian housing market, aiming to detect the presence of housing bubbles within it. The data set analyzed covers the past two decades, thereby including the period of the most recent housing boom between 2012 and 2015. Design/methodology/approach The paper describes the application of combined enhanced rigorous econometric frameworks, such as ordinary least square (OLS), Granger causality and the Vector Error Correction Model (VECM) framework, to provide an in-depth understanding of house price dynamics and bubbles in Australia. Findings The empirical results presented reveal that Australian house prices are driven primarily by four key factors: mortgage interest rates, consumer sentiment, the Australian S&P/ASX 200 stock market index and unemployment rates. It finds that these four key drivers have long-term equilibrium in relation to house prices, and any short-term disequilibrium always self-corrects over the long term because of economic forces. The existence of long-term equilibrium in the housing market suggests it is unlikely to be in a bubble (Diba and Grossman, 1988; Flood and Hodrick, 1986). Originality/value The foremost contribution of this paper is that it is the first rigorous study of housing bubbles in Australia at the national level. Additionally, the data set renders the study of particular interest because it incorporates an analysis of the most recent housing boom (2012-2015). The policy implications from the study arise from the discussion of how best to balance monetary policy, fiscal policy and macroeconomic policy to optimize the steady and stable growth of the Australian housing market, and from its reconsideration of affordability schemes and related policies designed to incentivize construction and the involvement of complementary industries associated with property.

Information linkages among National, NSW, VIC, and QLD real estate markets in Australia

“…This suggests that Australian national house prices and three key regions’ house prices are driven by macroeconomic and ripple effects up to Q10. Post Q10, NATIONALHP and three key regions’ house prices are driven by the macroeconomy only (Wang et al ., 2018). Secondly, this research suggests that impulses from QLDHP have the lowest impacts (at about 2%) regarding NSWHP and VICHP in Q2.…”

Modeling of residential property rents in Somalia using two-stage modeling

“…Real estate experts suggest that the median home should be priced relatively to both household income and gross annual rents for a healthy housing sector (Chen et al , 2007; Gallin, 2006; Mian and Sufi, 2016). The changes that a bubble might be forming are greater when more house prices are overvalued (Hou, 2010; Kolko, 2015; Li and Chiang, 2012; Pitros and Arayici, 2016; Wang et al , 2018). On the other way, the asset or security might be undervalued due to some real or perceived factors.…”

“…There is extensive literature that investigated housing price overvaluation (bubbles) in various regions and countries of the world. [see, for instance, Hou, 2010; Asal, 2019; Reiss, 2009; Micallef, 2018; Andreas Claussen, 2013; Wang et al , 2018; Ciarlone, 2015; Besarria et al , 2018; Taltavull and McGreal, 2009; Kok et al , 2018; Levin et al , 2011; Krakstad and Oust, 2015; Hott (2012)].…”

Factors Affecting Housing Prices in Malaysia: A Literature Review

“…In addition, Gholipour et al (2019) found that foreign investment, availability of finance services, economic activities, interest rate and costs of constructions are the main determinants of house prices. Wang et al (2018) had also suggested that households are more likely to purchase properties when interest rates are low, resulting in increases in house prices in such circumstances.…”

“…In other words, a growth in unemployment level may discourage individuals to purchase houses. Besides that, Wang et al (2018) had estimated that unemployment rate shows insignificant impact on house prices. A lower unemployment rate may alleviate affordability constraints because of the increased purchasing power associated with higher incomes.…”