  In this paper, we investigate the impact of mortgage rates on home prices,
and how the impact may be used to help property purchase discussions at
individual buyer level and to adjust home price indices across time. A
mortgage-rate-adjusted "effective price" is derived to measure near term
property price in the presence of (expected) mortgage rate changes. A
price-mortgage rate neutrality line is then constructed based on the "effective
price" to help differentiate various market scenarios in the near term, which
can be used by prospective buyers in their "to-buy or not-to-buy"
deliberations. At the market level, effective home prices allow for
neutralization of mortgage rates on the movement of the housing market. An
application of the neutralization strategy to the Case-Shiller Home Price Index
(HPI) indicates that the U.S. housing market has been considerably affected by
the dynamics of mortgage rates in a long run. But mortgage rates do no appear a
primary driver of the extraordinary home price increase during the COVID-19
pandemic.
