House Price-Volume Dynamics: Evidence from 12 Cities in New Zealand

Using a selected New Zealand urban area data set for the period 1994-2004, we examine price and volume dynamics using various house price indexing approaches. Applying the Granger causality test based on a vector error correction model (VECM), where seasonality is considered in the model by using seasonal dummy variables, we find that sale price and trading volume are cointegrated. Causality is caused by a long-run relationship rather than short-run dynamics between price and volume. The direction of causality for large cities is from volume to price. The results support the theory of frictional search models for housing markets in general.