Interest rates and real estate dynamics

: an analysis of property prices in advanced economies

Abstract

This thesis investigates the relationship between government bond yields and residential property prices across several advanced economies. The study was carried out using different panel specifications to examine how this relationship changes when accounting for unobserved country-specific and time-specific factors. The significant negative correlation established through OLS and country fixed effects regressions is consistent with traditional economic theory, suggesting that higher bond yields (which usually lead to higher mortgage rates) dampen demand for housing and decrease property prices. However, when accounting for only time fixed effects, the model indicates a significant positive relationship, implying that when global trends are absorbed, other factors specific to each country may drive this outcome. Lastly, the two-way fixed effects regression shows a negative but non-significant association. Controlling for both country-specific and time-specific effects, the model absorbs much of the variability that can explain the relationship, leading to a weaker and statistically insignificant association. The results reveal a complex relationship between government bond yields and real estate prices. Through the analysis of this connection across multiple countries, this study addresses the literature’s gaps and provides insights to policymakers, investors, homeowners and the real estate industry.

Date of Award	23 Oct 2024
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Jiri Woschitz (Supervisor)