Effects of Mortgage Interest Rates on House Price Appreciation: The Role of Payment Constraints

William Larson

No 22-04, FHFA Staff Working Papers from Federal Housing Finance Agency

Abstract: This research examines the effects of mortgage interest rates on house prices in the 100 largest U.S. cities, with appreciation driven by both short-run dynamics and convergence towards long-run economic fundamentals. The nature of the long-run equilibrium depends on the elasticity of housing supply, and the speed of adjustment to this long-run equilibrium depends on the degree to which borrowers are near monthly debt service payment constraints. Accordingly, the pass-through of mortgage interest rates to house prices is location and time-varying. This has implications for our understanding of monetary policy transmission, systemic risk, and the role of household finances in the macroeconomy.

Keywords: Asset Pricing; Household Finance; House Price Bubbles (search for similar items in EconPapers)
JEL-codes: C23 E43 G21 G51 R30 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2022-11
New Economics Papers: this item is included in nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hfa:wpaper:22-04

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