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Effect of Interest Rates on Housing Prices: Focusing on Regional Differences

Kim, Jinyoung 1,  Jang, Heesoon ORD ID 2

1강원대학교 대학원
2강원대학교 부동산학과

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ABSTRACT

The purpose of this study is to investigate the causes of different patterns of U shaped housing prices in the metropolitan area and the upward trends in the five major metropolitan cities after the global financial crisis. To this end, analysis methods such as the Granger causality test, Johanssen cointegration test, and weak exogeneity test were used to analyze the interrelationship between interest rates, loans, and housing prices, and track the path through which the impact of interest rates is transmitted to housing prices. The results show that the transmission of monetary policy did not work properly in the housing market in the metropolitan area until 2013, long after the global financial crisis. In other words, in the case of the five major metropolitan cities, the asset price channel and balance sheet channel worked simultaneously in the long term downward trend of interest rates, and the decline in interest rates affected the rise of housing prices, followed by housing prices inducing loans, resulting in the formation of an upward trend for housing prices. On the other hand, in the case of the metropolitan area, in the long term downward trend of interest rates, the transmission of monetary policy did not work properly until 2013, so the increase of loans was insignificant and housing prices fell. Afterwards, from 2014, the credit channel was being worked, and as loans and housing prices increased rapidly together, a U shaped pattern of housing prices formed.

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