Study on the Transmission Effect of Interest Rate Decline on Housing Price in Structural Deflation Cycle (2023-2025)

Abstract

During economic downturns, particularly deflationary periods, the transmission of interest rates to real estate prices poses a complex and challenging issue for central banks worldwide. The intertwining of various economic issues and black swan events continuously hinders this transmission mechanism, repeatedly weakening the effectiveness of interest rate policies and making it difficult for single-rate measures to effectively break the downward spiral in housing prices. This paper focuses on the specific context of China's economic downturn since 2019, examining the transmission effect of interest rate policies on real estate prices through regression analysis. It explores how interest rate policies interact with property values while simultaneously influencing investment and consumption patterns. The research finds that during structural deflation, interest rate cuts have a short-term positive impact on housing prices, with current and one-period lagged rates showing significant effects. However, the transmission mechanism is severely weakened in the long run. This inefficiency is attributed to three key bottlenecks: high household debt saturation, liquidity traps for developers, and self-reinforcing deflationary expectations. The research concludes that traditional monetary policy is systemically ineffective in this environment, necessitating more targeted, integrated policy measures. It extends the financial accelerator model and provides empirical support for targeted monetary policies.