Follow the leader: Exploring leading indicators of the Victorian property market By Madeleine Tan and Maryam Nasiri ABSTRACT This paper examines potential leading indicators in the Victorian property market for the purposes of analysing market trends and turning points. The research will rely on several economic and econometric methods. In the first portion of the paper, hedonic property price indices are constructed and the methodology is described. The second stream looks to determine whether there are certain groups that might lead the wider property market, based on different stratification approaches by either value or location. There is evidence that the inner and metropolitan (metro) regions, the cluster of regions in the central business district (CBD) and the south-east of Melbourne, and high-value properties (top 25 percentile) lead the overall (headline) property price cycle in Victoria. The relationship between Melbourne and Sydney’s property market was found to reflect interdependence, rather than a causal leading- lagging relationship with the direction of causality going both ways. Overall, the leading indicators provide some evidence in favour of future property price growth easing in Victoria in the future Overview Understanding movements in house prices is fundamental for economic and financial development. The boom and bust cycles in the housing market have consequences for the rest of the economy, including real activity, employment, wages and inflation. The events following the collapse of the subprime mortgage market in the United States (US) is an example of the importance of the housing market for the broader economy. It has been found that the economic impact of changes in house prices is often larger than the impact of changes in equity prices and the consequences for the real economy are more pronounced (Case, Quigley, and Shiller, 2005; Jorda, Schularick, and Taylor, 2015).
Follow the leader: Exploring leading indicators of the Victorian property market By Madeleine Tan and Maryam Nasiri ABSTRACT This paper examines potential leading indicators in the Victorian property market for the purposes of analysing market trends and turning points. The research will rely on several economic and econometric methods. In the first portion of the paper, hedonic property price indices are constructed and the methodology is described. The second stream looks to determine whether there are certain groups that might lead the wider property market, based on different stratification approaches by either value or location. There is evidence that the inner and metropolitan (metro) regions, the cluster of regions in the central business district (CBD) and the south-east of Melbourne, and high-value properties (top 25 percentile) lead the overall (headline) property price cycle in Victoria. The relationship between Melbourne and Sydney’s property market was found to reflect interdependence, rather than a causal relationship with the direction of causality going both ways. Overall, the leading indicators provide some evidence in favour of future property price growth easing in Victoria in the future Overview Understanding movements in house prices is fundamental for economic and financial development. The boom and bust cycles in the housing market have consequences for the rest of the economy, including real activity, employment, wages and inflation. The events following the collapse of the subprime mortgage market in the United States (US) is an example of the importance of the housing market for the broader economy. It has been found that the economic impact of changes in house prices is often larger than the impact of changes in equity prices and the consequences for the real economy are more pronounced (Case, Quigley, and Shiller, 2005; Jorda, Schularick, and Taylor, 2015). leading- lagging
Victoria%27s%20Economic%20Bulletin%20-%20Volume%202.docx