Interest rates and housing prices: A cross comparison between the US and China

Abstract

Interest rates (e.g., government bond yields, mortgage rate) are an essential monetary tool to regulate economy. Existing scholars have studied the impact of interest rates and some non-monetary factors such as physical investment on housing prices. Using multivariate linear regressions, this study investigates the predictive capability of interest rates and additional control variables that either are inspired by the previous studies or haven’t been examined before over the housing prices of the US and China. Throughout the analyses, mortgage premium, household indebtedness, and net physical investment are found to have more predictive capability in the US housing market, whereas term premium and deposit to GDP ratio pose more impact on China. Furthermore, even though Chinese economy is more government-intervened, there is no evidence that newly-published polices have regulatory effect over the housing prices in China.