Interest Rates and the Distribution of House Prices
73 Pages Posted: 8 Nov 2015 Last revised: 12 Apr 2024
Date Written: April 8, 2024
Abstract
How do interest rates affect the distribution of house prices? I develop a parsimonious housing assignment framework with credit constraints, and exploit incidental differences in the income distribution to identify the model. A one percentage point decline in mortgage rates causes a 6% contemporaneous increase in home values in middle-priced neighborhoods. High-priced neighborhoods experience half of this increase, while low-priced neighborhoods exhibit no change. The results also underscore the persistence of interest rate shocks. The rate shocks between Jul-2000 and Dec-2001 may account for a significant amount of price variation in middle-priced neighborhoods during the early 2000s housing boom.
Keywords: Interest rates, housing prices, mortgage rates, housing wealth, housing demand, monetary policy
JEL Classification: E52, D14, D31, E21, R21, R31
Suggested Citation: Suggested Citation