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Heterogeneous Effects of Mortgage Rates on Housing Returns: Evidence from an Interacted Panel VAR

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  • Robert Forster

    (University of Liverpool)

  • Xiaojin Sun

    (University of Texas at El Paso)

Abstract

This paper develops a theoretical and empirical framework to assess the heterogeneous effects of mortgage rates on housing returns when accounting for the zero lower bound regime of the policy interest rate and local market supply and demand conditions. Based on an interacted panel VAR, estimated on a dataset comprising of 146 metropolitan statistical areas for a time period between January 1995 and December 2020, our empirical findings show that the response of housing returns to a mortgage rate shock is larger in magnitude when the federal funds rate is at its zero lower bound. Various supply and demand conditions, including housing permits, personal income, employment, and population, matter for the transmission of a mortgage rate shock to housing returns in local markets. A partial equilibrium model supports our empirical results.

Suggested Citation

  • Robert Forster & Xiaojin Sun, 2024. "Heterogeneous Effects of Mortgage Rates on Housing Returns: Evidence from an Interacted Panel VAR," The Journal of Real Estate Finance and Economics, Springer, vol. 69(3), pages 477-504, October.
    • Handle: RePEc:kap:jrefec:v:69:y:2024:i:3:d:10.1007_s11146-022-09902-3
    DOI: 10.1007/s11146-022-09902-3
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    More about this item

    Keywords

    Housing returns; Mortgage rates; Supply and demand conditions; Zero lower bound;
    All these keywords.

    JEL classification:

    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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