Cullum Clark is Director of the Bush Institute-SMU Economic Growth Initiative and an SMU Adjunct Professor of Economics
Should the Fed decide to slow down its path of interest rate increases in 2019, how will it impact the housing market?
The Wall Street Journal reported that the Federal Reserve is reconsidering its prior intention of imposing three or more increases in its benchmark interest rate during 2019. This emerging caution on the part of U.S. monetary policy-makers reflects growing concerns about signs of economic weakness abroad and the potential impact of U.S.-Chinese trade disputes on the domestic economy.
All else equal, lower interest rates are good for homebuyers, since low rates mean buyers can finance a given purchase price with lower monthly payments. However, this is an oversimplification as lower rates also lead to higher home prices. Ultra-low interest rates in the United States over the past two decades have played a large role in driving home prices to historically high levels relative to household incomes, both during the housing mania of 2004 to 2007 and over the last five years. And higher interest rates over the last two years have caused a slowdown in the pace of price increases.
So, if the Federal Reserve hikes rates less than previously planned – or stops raising interest rates altogether – it may lead to a reacceleration in home prices. READ MORE