between house prices and fundamental factors, the study created a specific equation which explains the relationship between real house prices and real interest rates and real disposable income. Then, one by one, it added other variables which represent remaining fundamental factors to avoid muliticollinearity. Income, housing credit, population, labour force, real wage, and deregulation in housing financial institutions have a positive relationship with house prices whilst interest rates, unemployment, equity price are negatively correlated with house price. Abelson, P. et al (2005) Explaining house prices in Australia: 1970-2003. The Economic record. vol. 81, iss. special, pp.96-103 This paper also focused on the factors affecting house prices, which is the same as the objectives of my dissertation. This study focused on house prices in Australia in the period 1970-2003. However, unlike other studies, they developed different models which separate short and long term movement of house prices. Their models were called long run equilibrium and short run asymmetric error correction models. Moreover, they cover the lagged, speculative effect and other disequilibria in housing market. The approach was based on the idea that long run house prices are determined by fundamental factors such as real disposable income, consumer price index and that the short run house prices may fluctuate around the equilibrium position but continue to readjust to the equilibrium position.
However, the readjustment process is quicker when house prices are rising rather than falling or flattening because house buyers tend to buy when prices are rising with the fear that they will be higher in the future. The study supported the theory that in the long run house prices are strongly affected by real disposable income, unemployment, real interest rates, equity prices, CPI and supply of housing and all the sign of variables are the same as expected. In the short run, this paper found significant time lags in adjustment to equilibrium and the time of adjustment is varied depending on the movement of house prices. Jacobsen, D. and Naug, B. (2005) What drives house prices. Economic Bulletin. vol. 76, iss. 1, pp 29-42. This paper tried to answer two questions similar to those of my dissertation, which is finding what the most important fundamental factors of house prices are, and examining whether there is a house price bubble in housing market. It found that interest rates, housing construction, unemployment and household income are the most fundamental factors of housing markets. The study did not find the relationship between household debt and house prices and between house prices and population and demographic &nb
