Professor Albert Saiz,of MIT visited the Lewis Center in May to discuss his research findings about interest rates and their connection with fluctuations in housing prices. Speaking to an audience of 25, he found that the interest rate-housing prices link has significant consequences for wealth accumulation, labor mobility, consumption, macroeconomic volatility, and financial market stability. However, Prof. Saiz noted that it is difficult to know if housing price movements are due to fundamental factors such as rental prices or “irrational exuberance”.
Prof. Saiz shared grounded theoretical expectations about the impact of changes in rental prices on home values. He stated that rental prices and rental expenditures are explained at least in part by interest rates, and that expected changes in home values are a function of the supply elasticity of housing and the initial share of land relative to prices in a city.
Prof. Saiz spoke as part of a spring series of lectures focusing on housing.