Abstract

This study analyzes the impact of interest rates on housing prices in Seoul and four U.S. cities (New York, Los Angeles, Chicago, and Washington D.C.). Using a time-varying VAR model and monthly data from 1991 to 2023, we find that Seoul’s housing prices respond more flexibly to interest rate shocks than those in major U.S. cities, particularly since 2008. While U.S. cities showed a rapid reaction to interest rates around 2008, their response has diminished since 2010. In contrast, interest rates and Jeonse prices continue to significantly affect Korean housing prices, especially during periods of lower interest rates. Our findings highlight the increasing impact of interest rates on Korean housing prices over time, suggesting the need for close attention to both interest rates and Jeonse prices in guiding Korean housing market.

Key words: Interest rates, Housing price, Time-varying parameter VAR Model, Impulse response analysis.