The Dynamic Impact of Monetary Policy on Regional Housing Prices in the United States

Fischer, Manfréd M.; Huber, Florian; Pfarrhofer, Michael; Staufer‐Steinnocher, Petra

doi:10.1111/1540-6229.12274

Cited by 25 publications

(23 citation statements)

References 45 publications

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“…Consistent with our findings for Australia, there is substantial variation across US local housing markets in the sensitivity of housing prices to monetary policy (Fratantoni and Schuh 2003; Cooper, Luengo‐Prado and Olivei 2016; Fischer et al 2018; Xie 2019). This heterogeneity is typically linked to variation in housing supply elasticities (Glaeser et al 2008; Xie 2019) and, more specifically, to variation in local government regulations (Fischer et al 2018). There is also some evidence of asymmetric effects of monetary policy across US local housing markets (Aastveit and Anundsen 2016).…”

Section: Introductionsupporting

confidence: 84%

“…However, some studies suggest that monetary policy has a limited role to play in explaining the variation across local housing markets (Del Negro and Ortok 2007). Moreover, while many studies suggest that regional heterogeneity is due to supply‐side factors, other potential explanations could be important too (for example, Fischer et al 2018; Beraja et al 2019).…”

Section: Introductionmentioning

confidence: 99%

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The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets in Australia

Cava¹,

He²

2021

Australian Economic Review

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The effect of monetary policy on housing prices varies significantly across local housing markets. This heterogeneity across local housing markets can be partly explained by variation in housing supply conditions—housing prices are typically more sensitive to changes in interest rates in areas where land is more expensive. The fact that housing prices in more expensive areas are more sensitive to changes in interest rates than in cheaper areas indicates that lower (higher) interest rates increase (decrease) housing wealth inequality. However, the effects of monetary policy on housing wealth inequality appear to be temporary. Other factors also explain the variation in sensitivity to monetary policy across local housing markets with the sensitivity being greater in areas in which incomes are relatively high, households are more indebted and there are more housing investors. This suggests that the sensitivity of housing prices to monetary policy is state dependent.

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Section: Introductionsupporting

confidence: 84%

Section: Introductionmentioning

confidence: 99%

The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets in Australia

Cava¹,

He²

2021

Australian Economic Review

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“…A reasonable explanation for this is that most of the characteristics affect both the level of housing prices and the loan-to-value ratio. In an interesting and recently published article, Fisher et al (2019), the effect of monetary policy on regional housing markets around the US is also analyzed. The results from their VAR model and impulse response functions using monthly data from 1997 to 2012 show that the effect can vary considerably between regions.…”

Section: Literature Reviewmentioning

confidence: 99%

What Role Does the Housing Market Play for the Macroeconomic Transmission Mechanism?

Wilhelmsson

2020

JRFM

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The main objective is to answer the question: What role does the housing market play for the transmission mechanism and (in particular) is the impact constant over time? The research question also includes analyzing the importance of the housing market for the transmission mechanism. We estimate an eight-variable structural vector autoregression (SVAR) model of the Swedish economy over the period 1993 and 2018 using quarterly data, covering both the internet bubble in 2000 and the financial crises in 2008. The results indicate that interest rates have both a direct effect on housing prices and an indirect impact through the bank lending channel. Over time, the traditional interest rate channel importance has been stable. On the other hand, the role of the bank lending channel has increased over time. Household debt has increased substantially in Sweden and elsewhere. That means that the interest rate sensitivity in society has increased. Based on the results, it is possible to evaluate and forecast potential house price effects (both direct and indirect) when the interest rate changes.

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“…Overall, the empirical results of this study have verified that interest rate variation affects home price behavior, and home prices tend to fall into disequilibrium or correct themselves anytime in the housing market when the economic environment involves a substantial decrease in interest rates. Previous studies have reported that interest rates affect housing prices (Fischer et al, 2019;Hanck & Prüser, 2020;Valadkhani et al, 2019) and result in housing bubbles (Jordà et al, 2015;Moons & Hellinckx, 2019). Other studies have identified that money supply affects housing prices (Su et al, 2019;Yin et al, 2020) and bubbles (Tsai, 2015b;Huang & Shen, 2017).…”

Section: Home Price Behaviormentioning

confidence: 98%

The Special Effect of Interest Rate Cuts on Housing Prices

Lin

Tsai

2021

Journal of Business Economics and Management

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This study uses theoretical models and empirical research to explain that interest rates affect the structure of housing price formation and correction rather than affect the price alone. In particular, when interest rates are substantially reduced, the correction of housing prices toward fundamentals is absent; in other words, a housing bubble is likely to occur. This study first illustrates a model for explaining home price behavior. Data from the Case-Shiller U.S. National Home Price Index between January 1975 and August 2020 are adopted to observe the behavior of home prices. The empirical results show that the correction and bubble behavior of U.S. home prices have exhibited significant structural changes. Variation in money supply fails to explain the structural changes, however, interest rate variation can significantly affect the structural changes. According to the results, when interest rates rise or fall slightly, the correction of home prices toward the equilibrium value is significant. However, when interest rates fall substantially, the bubble behavior of home prices is significant. For governments that adopt low interest rates to revitalize the economy, the results of this study provide special reference values. Governments should provide additional intervention in housing markets when an extremely low interest rate exists.

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The Dynamic Impact of Monetary Policy on Regional Housing Prices in the United States

Cited by 25 publications

References 45 publications

The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets in Australia

The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets in Australia

What Role Does the Housing Market Play for the Macroeconomic Transmission Mechanism?

The Special Effect of Interest Rate Cuts on Housing Prices

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