Housing prices and expectations: a study of Auckland

Abstract

Purpose The purpose of this paper is twofold. First, the study aims to test whether expectations are adaptive in the Auckland housing market. The second purpose is to examine the interplay between expectations and Auckland housing prices. Design/methodology/approach In this study, two vector error correction models (VECM) are built: one VECM includes survey-based expectations and another one encompasses model-based expectations with the assumption that property investors’ expectations are adaptive. The paper goes on by comparing and examining the results of Granger causality tests and impulse response analyses. Findings The findings reveal that Auckland property buyers’ expectations are adaptive. In addition, this study provides some evidence of a feedback cycle between Auckland housing prices and expectations. Research limitations/implications This study posits that Auckland property buyers’ expectations in the next 12 months are based on three-year price movements with more emphasis being placed on recent price history. This assumption may not be an accurate reflection of true expectations. Practical implications This paper helps policymakers to deepen their understanding of Auckland property buyers by showing that their expectations form through the extrapolation of the past price trend. Originality/value The study possibly marks the first attempt to test and compare the relationship between housing prices and two forms of expectations: survey-based and model-based. Additionally, this study is probably the first one that empirically examines whether there is a feedback cycle between expectations and property prices in the Auckland housing market.

House price index (HPI) and Covid-19 pandemic shocks: evidence from Turkey and Kazakhstan

“…The expectation partially drives the outcome of what will happen (Wang et al , 2017). This is because large body literature on housing prices agreed that the market participants align their activities in the direction of their expectation about house prices which eventually drives the prices (Yang et al , 2020). This is because, in the absence of sufficient information made available for the investors in making sound decisions, historical pricing pattern in relation to the past event would be among an alternative source of information for the investors to make their decisions.…”

“…As a greater proportion of the current housing price in Kazakhstan is derived from previous house price, it may be easier for housing market speculators to predict the price movement of Kazakhstan HPI. Yang et al (2020) also reported that housing price experienced extensive speculation in the past two decades being obvious that speculative activities cause drastic changes in the market (Vatansever et al , 2020). This implies that the pricing of Turkey HPI is relatively more efficient than Kazakhstan HPI.…”

Housing Price Volatility: What's the Difference between Investment and Owner‐Occupancy?*

“…Yang et al . (2020) provide some evidence of a feedback loop between expectations and real estate prices in Auckland: housing capital gains increase buyers' expectations which in turn spur further price growth.…”

Is There Financialization of Housing Prices? Empirical Evidence from Santiago de Chile

“…Hurn et al investigated the interconnectedness of housing markets through international networks by looking through temporal causal relationships for possible crossinfluences, which was not fully confirmed but did identify a field of research relevant to economic disciplines (Hurn et al 2022). A study in Auckland identified causal relationships between speculative housing investment and long-term house price increases (Yang et al 2019). Liang et al evaluate the causal relationship between commodity prices and local house prices, identifying that there is no significant evidence of linear causality between the two, although there is significant evidence for non-linear relationships measured by the Granger causality test (Liang et al 2021).…”