Using the Vector Autoregressive Regression model, this paper examines the effect of 15-year fixed mortgage rate on the median sales price for houses in the United States from 2005 to 2018. Following the simple law of demand and supply, the negative relationship between 15-year fixed mortgage rate and median sales price was first considered. As the work further investigated, the different action and function of housing are brought up to the topic as a factor. Some people tend to buy houses as a living place but others tend to buy houses as investments like buying stocks and gold. Other material such as consumer confidence and income gap was brought up from the social perspective and it was suspected that these two might have an effect on housing market prices. After the consideration of complex behavior of different people during different time period, it is hypothesized that 15-year fixed mortgage rate might bring a negative effect to the median sales price in the United States housing market. After the literature review, the hypothesis is empirically tested by examining the regression of 15-year fixed mortgage rate as the dependent variable and median sales price as the dependent variable. Impulse Response function graph and Forecast Error Variance Decomposition table are used to examine the effect of a shock in 15-year fixed mortgage rate on the median sales price. Although the regression results do not provide significant evidence in support of the hypothesis, a discussion on other tests and how the regression result could still be useful is stated.
Jin, Qiushi, "An Investigation on the Effect of Mortgage Rate on the United States Housing Price Using the Vector Autoregressive Regression Model" (2019). Senior Independent Study Theses. Paper 8574.
mortgage rate, housing prices
Bachelor of Arts
Senior Independent Study Thesis
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