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The relation between interest to income ratio, property price and mortgage rate - An analysis of time series data for Stockholm and Sweden over the period 1996-2015

Buhr-Berg, Maja LU (2016) NEKN01 20161
Department of Economics
Abstract
Examining the relation between Swedish households’ debt, property price and interest rates are important when forming monetary policy implications. Several studies have examined the driving factors of household debt and property price, however the results are inconclusive. This thesis differs from previous research as it includes the variable interest to income ratio, instead of debt ratio, as the measure of household debt. The variable interest to income ratio is chosen since it illustrates households’ actual cost for their debt.
Using time series data for Stockholm and Sweden over the period Q1 1996 to Q2 2015, the Granger causality test reveals that the causality goes from interest to income ratio to real estate price index. In... (More)
Examining the relation between Swedish households’ debt, property price and interest rates are important when forming monetary policy implications. Several studies have examined the driving factors of household debt and property price, however the results are inconclusive. This thesis differs from previous research as it includes the variable interest to income ratio, instead of debt ratio, as the measure of household debt. The variable interest to income ratio is chosen since it illustrates households’ actual cost for their debt.
Using time series data for Stockholm and Sweden over the period Q1 1996 to Q2 2015, the Granger causality test reveals that the causality goes from interest to income ratio to real estate price index. In addition, mortgage rates Granger cause interest to income ratio. Moreover, mortgage rates are not shown to drive real estate price and real estate price is not shown to Granger cause interest to income ratio. The results from the Granger causality test are used to form OLS regression models. The results from the regressions indicate that the interest to income ratio has a delayed affect on the real estate price index, which is significant for the 5th lag. Further, over the period Q1 1996- Q2 2015, a 1 % increase in the interest to income ratio leads to a decrease in the growth rate of the real estate price index for Sweden with 0.062 percentage units, and for Stockholm with 0.067 percentage units. (Less)
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author
Buhr-Berg, Maja LU
supervisor
organization
course
NEKN01 20161
year
type
H1 - Master's Degree (One Year)
subject
keywords
Interest to income ratio, household debt, mortgage rate, real estate price index, Granger causality
language
English
id
8889318
date added to LUP
2016-09-09 14:01:37
date last changed
2016-09-09 14:01:37
@misc{8889318,
  abstract     = {Examining the relation between Swedish households’ debt, property price and interest rates are important when forming monetary policy implications. Several studies have examined the driving factors of household debt and property price, however the results are inconclusive. This thesis differs from previous research as it includes the variable interest to income ratio, instead of debt ratio, as the measure of household debt. The variable interest to income ratio is chosen since it illustrates households’ actual cost for their debt. 
Using time series data for Stockholm and Sweden over the period Q1 1996 to Q2 2015, the Granger causality test reveals that the causality goes from interest to income ratio to real estate price index. In addition, mortgage rates Granger cause interest to income ratio. Moreover, mortgage rates are not shown to drive real estate price and real estate price is not shown to Granger cause interest to income ratio. The results from the Granger causality test are used to form OLS regression models. The results from the regressions indicate that the interest to income ratio has a delayed affect on the real estate price index, which is significant for the 5th lag. Further, over the period Q1 1996- Q2 2015, a 1 % increase in the interest to income ratio leads to a decrease in the growth rate of the real estate price index for Sweden with 0.062 percentage units, and for Stockholm with 0.067 percentage units.},
  author       = {Buhr-Berg, Maja},
  keyword      = {Interest to income ratio,household debt,mortgage rate,real estate price index,Granger causality},
  language     = {eng},
  note         = {Student Paper},
  title        = {The relation between interest to income ratio, property price and mortgage rate - An analysis of time series data for Stockholm and Sweden over the period 1996-2015},
  year         = {2016},
}