The Impact of Interest Changes on Housing Prices

Abstract

The study examines the relationship of interest rates and housing prices. It does so for Sweden as a nation as well as the cities Stockholm and Gothenburg. The interaction of housing prices and interest rates is examined by using the Johansen tests for cointegration and the vector error correction model. Several studies have been conducted on this topic across the globe, but not many in Scandinavia, and not using the same time-frame. This thesis contributes to the literature by studying quarterly data between 1996 and 2019, capturing two economic cycles. We find evidence of long-run and short-run interactions between the interest and housing prices. The results showed evidence of a negative relationship between housing prices and the interest rate. Furthermore, we found that Stockholm housing prices is more sensitive to interest rate changes compared to the nation and Gothenburg.