The global financial crisis (GFC) of 2008‐2009 has highlighted the need for understanding fluctuations in housing variables and how, as such, they contribute to understanding how housing markets work. The contention of this paper is to present a univariate structural time series analysis of the Australian Housing Finance Commitments (HFCs) covering the period 1988:6‐2009:5. The empirical analysis aims to focus on establishing whether monthly HFCs exhibit the expected cyclical and seasonal variations. The presence of a monthly seasonal pattern in HFCs is to be ascertained by way of testing possible hypotheses that explain such a pattern.
A structural time series framework approach, used in this paper, is in line with that promulgated by Harvey. Such models can be interpreted as regressions on functions of time in which the parameters are time‐varying. This makes them a natural vehicle for handling changing seasonality of a complex form. The structural time series model is applied to seasonally unadjusted monthly HFCs, between 1988:6 and 2009:5. The data have been sourced from the ABS. For consistency, the sample for each variable is standardised to start with the first available July observation and end with the latest available June observation.
The modelling results confirm the presence of cyclicality in HFCs. The magnitude of the observed cycle‐related changes is A$817m. A structural time series model incorporating trigonometric specification reveals that seasonality is also present and that it is stochastic (as implied by the inconsistency of the monthly seasonal factors over the sample period). The magnitude of monthly seasonal changes is A$435.8m. The results show the presence of statistically significant factors for January, February, March, April, May, September, October and November, which are attributed to “spring”, “summer” and “autumn” seasonal effects.
Empirical evidence of variations in housing‐related variables is relatively limited. A study of the literature uncovered that most studies focus on house prices and found no empirical research focusing on fluctuations in HFCs. Consequently, this research aims to be the first to explain the presence of seasonal and cyclical fluctuations in such an important housing variable as HFCs. Moreover, the paper aims to enhance the practice of modelling seasonal influences on housing variables.
Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited