Interest rates, prices and housing transactions in Spain
DOI:
https://doi.org/10.17561/ree.n2.2023.7821Keywords:
rate of interest, price of housing, real estate “bubble”, monetary policy, real estate marketAbstract
The aim of this paper is to find a sound relationship among the rate of interest and prices and transactions in the Spanish housing market. We start from the hypothesis, as established in the literature on the subject we go through, that a negative relationship exists among the rate of interest variable and the other two that we consider. Using quarterly data, starting in 1995 to nowadays, of prices of houses (euros by square meter) and the mortgage rate at the end of each quarter, we obtain a negative causal relationship between both variables. To follow the temporal behaviour of these relationship we took one to four quarterly retards, finding out that the longer the retard, the higher the correlation. We justified the use of univariant models because the cointegration problems when different macroeconomic variables are taken to find an explanation for the behaviour of the prices of houses. The relationship between rate of interest and outstanding housing transactions it is restricted by a data set shorter than the prices data, finding out a positive and meaningless correlation for the whole set and a negative one and full of sense for a selected period. The literature on this topic shows up that the rate of interest has not the same impact on the prices of housing at the general level than in local markets with differentiated adjustments of housing supply and demand. For that reason, we present the cases of some Spanish provinces, adding new insights to the research. From an extensive review of the relationship between rate of interest, or wider concepts of monetary policy, and housing, emerge variables as credit conditions and the mechanism of transmission of the central bank monetary policy to the real estate sector. This paper confirms the general hypothesis of the effectiveness of the rate of interest as an economic policy tool to correct real estate markets disequilibrium, the relevance of local markets in establishing stronger relationship between the level of the prices and rate of interest, and the peculiar market adjustment through quantities or transactions versus prices in the Spanish housing market.
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