Housing Prices at the Time of QEs in California: Effect of Mortgage Rates

Abstract

In this paper we look at the impact of mortgage rates on California’s housing prices during the Great Recession when the quantitative easing (QE) programs were implemented. We find that the relationship between mortgage rates and housing prices is not strong and it becomes weaker, the closer the period gets to the Great Recession. Our analysis confirms some of the existing literature on the relationship between interest rates and housing prices; that in the boom-bust housing market cycles, interest rates do not play a major role one would expect in determining the demand for housing. Our analysis shows that, even as interest rates were high in the run up to the housing market peak in 2007, housing prices kept going up; and that after the bubble burst, even as rates were kept low, housing prices did not start recovering until 2011.