House Price Efficiency: Expectations, Sales, Symmetry

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.

[1]  David C. Maré,et al.  Ideas for Growth? , 2003 .

[2]  Andrew T. Levin,et al.  Unit root tests in panel data: asymptotic and finite-sample properties , 2002 .

[3]  Shuguang Liu,et al.  Carbon dynamics and land-use choices: building a regional-scale multidisciplinary model. , 2003, Journal of environmental management.

[4]  K. Case,et al.  Housing Price Dynamics within a Metropolitan Area , 1995 .

[5]  Suzi Kerr,et al.  Joint Implementation in Climate Change Policy , 2003 .

[6]  M. Pesaran,et al.  Testing for unit roots in heterogeneous panels , 2003 .

[7]  R. Dubin.  Spatial autocorrelation and neighborhood quality , 1992 .

[8]  Paul J. Seguin,et al.  Expectations, Efficiency, and Euphoria in the Housing Market , 1995 .

[9]  Arthur Grimes,et al.  Land Taxes and Revenue Needs as Communities Grow and Decline: Evidence from New Zealand , 2004 .

[10]  Matthew E. Kahn,et al.  Estimating Housing Demand With an Application to Explaining Racial Segregation in Cities , 2003 .

[11]  R. Shiller,et al.  Is There a Bubble in the Housing Market? , 2003 .

[12]  Nigel Pain,et al.  Modelling structural change in the UK housing market: A comparison of alternative house price models , 1997 .

[13]  Suzi Kerr.  Efficient Contracts for Carbon Credits from Reforestation Projects , 2003 .

[14]  R. Shiller,et al.  The Behavior of Home Buyers in Boom and Post-Boom Markets , 1988 .

[15]  David C. Maré,et al.  Understanding New Zealand's Changing Income Distribution, 1983-1998: A Semi-Parametric Analysis , 2003 .

[16]  Economic Growth and the Size and Structure of Government: Implications for New Zealand , 2003 .

[17]  Viv Hall,et al.  Would Adopting the Us Dollar Have Led to Improved Inflation, Output and Trade Balances for New Zealand in the 1990s? , 2003 .

[18]  Steven Cook,et al.  The Convergence of Regional House Prices in the UK , 2003 .

[19]  David C. Maré,et al.  Moving to Jobs? , 2003 .

[20]  Suzi Kerr,et al.  Allocating Risks in a Domestic Greenhouse Gas Trading System , 2003 .

[21]  Aysegul Can.  Specification and estimation of hedonic housing price models , 1992 .

[22]  David Genesove,et al.  Loss Aversion and Seller Behaviour: Evidence from the Housing Market , 2001 .

[23]  P. Pedroni.  Current Version : July 25 , 1999 CRITICAL VALUES FOR COINTEGRATION TESTS IN HETEROGENEOUS PANELS WITH MULTIPLE REGRESSORS * , 1999 .

[24]  Suzi Kerr,et al.  Migration and the Environment in the Galapagos: An Analysis of Economic and Policy Incentives Driving Migration, Potential Impacts from Migration Control, and Potential Policies to Reduce Migration Pressure , 2004 .

[25]  Suzi Kerr.  Indigenous Forests and Forest Sink Policy in New Zealand , 2003 .

[26]  Arthur Grimes,et al.  Economic growth and the size & structure of government: Implications for New Zealand , 2003 .

[27]  R. Fabling,et al.  Insolvency and Economic Development: Regional Variation and Adjustment , 2004 .

[28]  R. Lattimore,et al.  Longrun Trends in New Zealand Industry Assistance , 2003 .

[29]  David Rae,et al.  The determinants of house prices in New Zealand: An aggregate and regional analysis , 1997 .

[30]  Richard G. Newell,et al.  Evaluating the New Zealand Individual Transferable Quota Market for Fisheries Management , 2003 .

[31]  John Gibson.  Do Lower Expected Wage Benefits Explain Ethnic Gaps in Job-Related Training? Evidence from New Zealand , 2003 .

[32]  David F. Hendry,et al.  Co-Integration, Error Correction, and the Econometric Analysis of Non-Stationary Data , 1993, Advanced texts in econometrics.

[33]  David C. Maré,et al.  Movements into and Out of Child Poverty in New Zealand: Results from the Linked Income Supplement , 2003 .

[34]  Mark P. Taylor,et al.  Regional House Prices in Britain: Long-Run Relationships and Short-Run Dynamics , 1993 .

[35]  R. Shiller,et al.  The Efficiency of the Market for Single-Family Homes , 1988 .

[36]  Suzi Kerr.  Motu, Excellence in Economic Research and the Challenges of 'Human Dimensions' Research , 2003 .

[37]  Arthur Grimes,et al.  Housing and Economic Adjustment , 2003 .