Interest Rates and House Prices in the United States and Around the World

52 Pages Posted: 10 Nov 2017

See all articles by Gregory D. Sutton

Gregory D. Sutton

Bank for International Settlements (BIS) - Financial Stability Institute

Dubravko Mihaljek

Bank for International Settlements (BIS) - Monetary and Economic Department

Agne Subelyte

Bank for International Settlements (BIS)

Date Written: October 2017

Abstract

This paper estimates the response of house prices to changes in short- and long-term interest rates in 47 advanced and emerging market economies. We use data that statistical authorities selected as their best house price series, covering almost half a century of quarterly observations for the United States and over 1,000 annual observations for the rest of the sample. We find a surprisingly important role for short-term interest rates as a driver of house prices, especially outside the United States. Our interpretation is that this reflects the importance of the bank lending channel of monetary policy in house price fluctuations, especially in countries where securitisation of home mortgages is less prevalent. In addition, we document substantial inertia in house prices and find that changes in interest rates and other determinants affect house prices gradually rather than on impact. This suggests that modest cuts in policy rates are not likely to rapidly fuel house price increases. Finally, we find that US interest rates seem to affect house prices outside the United States.

Keywords: interest rates, house prices, monetary policy, bank lending channel, random walk, house price bubble, United States, advanced economies, emerging market economies

JEL Classification: E39, E43, E58, G12, R31, R32

Suggested Citation

Sutton, Gregory D. and Mihaljek, Dubravko and Subelyte, Agne, Interest Rates and House Prices in the United States and Around the World (October 2017). BIS Working Paper No. 665. Available at SSRN: https://ssrn.com/abstract=3052374

Gregory D. Sutton (Contact Author)

Bank for International Settlements (BIS) - Financial Stability Institute ( email )

Centralbahnplatz 2
CH-4002 Basle
Switzerland
+41 61 280 8080 (Phone)
+41 61 280 9100 (Fax)

Dubravko Mihaljek

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Agne Subelyte

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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