The interest rate sensitivity of house prices: international evidence on its state dependence

February 5, 2024
Issue 2024-01

Summary

This paper investigates how house prices have historically responded to interest rates and how their reaction has depended on preexisting conditions. We identify exogenous variations in short-term interest rates for 29 OECD countries relying on international spillovers from US monetary policy. Our results suggest that the average house price reaction is larger and more protracted than most of the previous estimates suggest. Amplitude and speed, however, depend considerably on the specific context. The reaction of house prices is larger and faster when interest rates are low, when their increase occurs during a recession, and when credit conditions are already tight. A preceding boom in house prices slows the price reaction at first but amplifies the decline in the medium term. Based on these results, we estimate how the cyclical conditions prevalent in 2022 typically influenced the house price reaction in our historical sample.

Download file now

The file can be downloaded with the button below.

Issue:
01
Pages:
48
JEL classification:
R21, E51, E32
Keywords:
House prices, Interest rates, Local projection, Smooth transition function
Year:
2024

Additional files

Related content

Author(s)

  • Dr. Matthias Burgert

  • Johannes Eugster

  • Victoria Otten

Your settings

Required: These cookies (e.g. for storing your IP address) cannot be rejected as they are necessary to ensure the operation of the website. These data are not evaluated further.
Analytics: If you consent to this category, data such as IP address, location, device information, browser version and site visitor behaviour will be collected. These data are evaluated for the SNB's internal purposes and are kept for two years.
Third-party: If you consent to this category, third-party services (used, for example, to add social multimedia content to the SNB's website) will be activated which collect personal data, process these data, disclose them abroad - worldwide - and place cookies. The relevant data protection regulations are linked in the 'Privacy statement for the website of the Swiss National Bank'.

Choose your preferred settings:

This website uses cookies, analytics tools and other technologies to provide requested features, content and services, to personalise the content shown, to provide links to social media, and to analyse the use of the website in anonymised form for the purposes of improving usability. Personal data are also disclosed abroad - worldwide - to video service providers and the analytics tools of these providers are used. More information is available under 'Manage settings'.