Interest rates and house prices in the United States and around the world

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.