Impact of Interest Rates and Inflation on House Prices

Rumbidzayi Taruvinga, Nosisa Mbhele, Edward Kodisang, Chioma Okoro and Jonathan Tembo

AfRES from African Real Estate Society (AfRES)

Abstract: This study examined the impact of interest rates and inflation on house prices in South Africa. A comparison is also made against two markets, China, and the United States. Using Ordinary Least Squares (OLS) multiple regression analysis, the study explored the relationships between interest rates, inflation, and the Housing Price Index (HPI) in each market. In South Africa, the study confirmed the residential real estate market’s role as an inflation hedge, with inflation positively influencing the HPI and driving residential property investment during inflationary periods. In China, higher interest rates exhibited a significant negative relationship with residential property prices. In contrast, in the United States, positive relationships between interest rates, inflation, and the HPI indicated that periods of economic growth may mitigate higher borrowing costs, encouraging residential property investment. These findings contribute to a greater understanding of how macroeconomic factors influence global real estate markets, enabling investors and policymakers to tailor their investment strategies to local economic conditions.

Keywords: inflation; Rising Interest Rates; House Prices; House Price Index (HPI) (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2024-01-01
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