Title

Do Lower Mortgage Rates Mean Higher Housing Prices?

Document Type

Article

Publication Date

2004

Source Publication

Applied Economics

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.

Comments

Applied Economics, Volume 36, Issue 4, pp 305-313 (2004). DOI: 10.1080/00036840410001674231