Do lower mortgage rates mean higher housing prices?

James McGibany and Farrokh Nourzad

Applied Economics, 2004, vol. 36, issue 4, 305-313

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.

Date: 2004
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DOI: 10.1080/00036840410001674231

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