Do lower mortgage rates mean higher housing prices?

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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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840410001674231

Affiliations: Department of Economics Marquette University Straz Hall PO Box 1881 Milwaukee WI 53233-1881 USA

Publication date: March 1, 2004

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