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Do lower mortgage rates mean higher housing prices?

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Author Info
James M. McGibany
Farrokh Nourzad
Abstract

Much research has shown that mortgage rates exert a negative influence on housing prices. This study analyses the long- and short-run relationships between housing prices and mortgage rates using advanced nonstructural estimation methods. As expected, a bivariate specification and a four-variable housing demand specification both show that these variables have a long-run relationship, and that there is a rather inelastic response of housing prices to changes in mortgage rates. However, contrary to previous research, the results from Granger non-causality tests, impulse response functions and variance decompositions reveal that there is virtually no short-run influence from mortgage rates to housing prices.

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Article provided by Taylor and Francis Journals in its journal Applied Economics.

Volume (Year): 36 (2004)
Issue (Month): 4 (March)
Pages: 305-313
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Handle: RePEc:taf:applec:v:36:y:2004:i:4:p:305-313

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Wheeler, Mark & Chowdhury, Abdur R, 1993. "The Housing Market, Macroeconomic Activity and Financial Innovation: An Empirical Analysis of U.S. Data," Applied Economics, Taylor and Francis Journals, vol. 25(11), pages 1385-92, November.
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March. [Downloadable!] (restricted)
  3. David A. Dickey & Dennis W. Jansen & Daniel L. Thornton, 1991. "A primer on cointegration with an application to money and income," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 58-78. [Downloadable!]
  4. Englund, Peter & Ioannides, Yannis M., 1997. "House Price Dynamics: An International Empirical Perspective," Journal of Housing Economics, Elsevier, vol. 6(2), pages 119-136, June. [Downloadable!] (restricted)
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  5. Kearl, J R & Mishkin, Frederic S, 1977. "Illiquidity, the Demand for Residential Housing, and Monetary Policy," Journal of Finance, American Finance Association, vol. 32(5), pages 1571-86, December. [Downloadable!] (restricted)
  6. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July. [Downloadable!] (restricted)
  7. Christopher J. Mayer & C. Tsuriel Somerville, 1996. "Regional housing supply and credit constraints," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 39-51. [Downloadable!]
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  1. Sei-Wan Kim & Radha Bhattacharya, 2009. "Regional Housing Prices in the USA: An Empirical Investigation of Nonlinearity," The Journal of Real Estate Finance and Economics, Springer, vol. 38(4), pages 443-460, May. [Downloadable!] (restricted)
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