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Interest rates and the spatial polarization of housing markets

Author

Listed:
  • Schularick, Moritz
  • Amaral, Francisco
  • Dohmen, Martin
  • Kohl, Sebastian

Abstract

Rising within-country differences in house values are a much debated trend in the U.S. and internationally. Using new long-run regional data for 15 advanced economies, we first show that standard explanations linking growing price dispersion to rent dispersion are contradicted by an important stylized fact: rent dispersion has increased far less than price dispersion. We then propose a new explanation: a uniform decline in real risk-free interest rates can have heterogeneous spatial effects on house values. Falling real safe rates disproportionately push up prices in large agglomerations where initial rent-price ratios are low, leading to housing market polarization on the national level.

Suggested Citation

  • Schularick, Moritz & Amaral, Francisco & Dohmen, Martin & Kohl, Sebastian, 2023. "Interest rates and the spatial polarization of housing markets," CEPR Discussion Papers 17780, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17780
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    More about this item

    Keywords

    House prices; Regional housing markets; Spatial polarization;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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