The interest rate sensitivity of house prices: international evidence on its state dependence

Dr. Matthias Burgert, Johannes Eugster and Victoria Otten



JEL classification
R21, E51, E32

House prices, Interest rates, Local projection, Smooth transition function


This paper investigates how house prices have historically responded to interest rates and how their reaction has depended on preexisting conditions. We identify exogenous variations in short-term interest rates for 29 OECD countries relying on international spillovers from US monetary policy. Our results suggest that the average house price reaction is larger and more protracted than most of the previous estimates suggest. Amplitude and speed, however, depend considerably on the specific context. The reaction of house prices is larger and faster when interest rates are low, when their increase occurs during a recession, and when credit conditions are already tight. A preceding boom in house prices slows the price reaction at first but amplifies the decline in the medium term. Based on these results, we estimate how the cyclical conditions prevalent in 2022 typically influenced the house price reaction in our historical sample.