Does Household Debt Amplify Mortgage Rate Effect on Housing Prices? : A Regional Analysis of Sweden

Sammanfattning

This thesis examines whether regional household leverage amplifies the effect of mortgage rate changes on house prices. Theoretically, higher household leverage suggests that houseprices are more sensitive to mortgage rate changes. This is understood through the cash-flowand collateral channel. This thesis uses a panel data covering 21 regions during the years 2010– 2017. Data is collected from Statistics Sweden, Laséen (2022) and Stenvall et al. (2025).The study uses a fixed effects model with region and year fixed effects. An interaction term between mortgage rate and Debt – to – income is employed to study the amplification mechanism. Analysis is conducted for small houses and apartments separately. Control variables, such as unemployment rate, regional gross domestic product and completed dwellings are used to mitigate the risk for omitted variable bias. The results show no strong statistical evidence of there being an amplifying relationship between Debt – to – income andmortgage rate. A joint model including apartments and small houses, indicates heterogeneity between the two housing types. Apartments are understood to be more responsive to mortgagerate changes in high DTI regions, relative to small houses.