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Articles:
The Impact of Interest Rates and Employment on Nominal Housing Prices Authors: Norman G. Miller, Michael A. Sklarz and Thomas G. Thibodeau Start Page:27
Abstract: This research
examines how well nominal income, nominal interest rates and employment
explain temporal variation in nominal metropolitan area house prices. Rather
than use a traditional model of real house prices, we explain nominal house
prices with a measure of "intrinsic" house value that combines local
economic factors with an affordable price based upon what the local median
income household could afford to pay at prevailing interest rates. The
affordable price variable captures local household income trends and current
interest rates. We then relate temporal variation in observed house prices
to "intrinsic" value and estimate the parameters of separate autoregressive
house price models for 316 cities. We observe that the coastal markets
exhibit much greater appreciation/ depreciation rates and much more
volatility than cities in the central portions of the country. Here we focus
primarily on the impact of interest rates on nominal prices in various MSAs,
a factor that many housing analyst have pointed to when debating the
existence of housing bubbles. Some markets are much more or less responsive
to interest rates than others. Supply constraints may explain some of this
increased responsiveness. |
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