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Interest Rates, Local Housing Markets and House Price Over†reactions

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  • G.C. Lim
  • Sarantis Tsiaplias

Abstract

Understanding the effects of interest rates on city†specific house price to household income ratios is important for managing local housing markets. In particular, there is concern that keeping interest rates at sufficiently low levels can distort the relationship between local house prices and fundamentals. We use house price to income ratios across capital cities in Australia to investigate this issue and show that there is a national interest rate ‘transition’ point below which housing dynamics can become unstable. This result lends support to the presence of a duration†dependent threshold effect (hitherto mainly explored in theoretical models).

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  • G.C. Lim & Sarantis Tsiaplias, 2018. "Interest Rates, Local Housing Markets and House Price Over†reactions," The Economic Record, The Economic Society of Australia, vol. 94(S1), pages 33-48, June.
    • Handle: RePEc:bla:ecorec:v:94:y:2018:i:s1:p:33-48
    DOI: 10.1111/1475-4932.12402
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    1. Calvin He & Gianni La Cava, 2020. "The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets," RBA Research Discussion Papers rdp2020-02, Reserve Bank of Australia.
    2. Sarantis Tsiaplias & Jiao Wang, 2023. "The Australian Economy in 2022–23: Inflation and Higher Interest Rates in a Post‐COVID‐19 World," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 56(1), pages 5-19, March.

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