Interest rates and real estate prices: a panel study

Abstract

This study examines the connection between interest rates and real estate prices in Switzerland. In considering median prices of six real estate groups consisting of rental apartments, owner-occupied flats, houses, office space, industrial real estate and sales area between the first quarter of 2005 and the fourth quarter of 2018 across 106 Swiss regions, we studied their connection with four interest rate proxies: yields on governmental bonds with 10-year maturity, fixed mortgage rates with 10-year maturity, variable mortgage rates and a newly introduced variable indicating the spread between net initial returns and yields on governmental bonds. Not only do our results show how real estate groups react to specific interest rate representatives, but also how this effect varies between Swiss regions.