Interest Rates, Local Housing Markets and House Price Over‐reactions1. (23rd April 2018)

• Record Type: Journal Article
• Authors: Lim, G.C.; Tsiaplias, Sarantis
• Other Names: de Roos Nicolas guestEditor.; Singh Aarti guestEditor.
• Is Part Of: Economic record. Volume 94(2018)Supplement 1
• Page Start: 33
• Page End: 48
• Publication Date: 2018-04-23
• Subjects: Australia -- Economic conditions -- Periodicals; 330.99
• DOI: 10.1111/1475-4932.12402
• Languages: English
• ISSNs: 0013-0249

Abstract

Abstract : Understanding the effects of interest rates on city‐specific house price to household income ratios is important for managing local housing markets. In particular, there is concern that keeping interest rates at sufficiently low levels can distort the relationship between local house prices and fundamentals. We use house price to income ratios across capital cities in Australia to investigate this issue and show that there is a national interest rate 'transition' point below which housing dynamics can become unstable. This result lends support to the presence of a duration‐dependent threshold effect (hitherto mainly explored in theoretical models).