SF Fed, Report: House Prices Respond Promptly to Monetary Policy Surprises

“In this Letter, we show that house list prices respond to monetary policy surprises in a matter of weeks; this is contrary to the established research that suggests house prices take years to adjust. We find that short-term changes such as shocks to the federal funds rate have less of an impact than surprises to forward guidance and large-scale asset purchases, both of which affect long-term interest rates. This effect of monetary policy on housing prices occurs via changes in mortgage rates. When mortgage rates increase, list prices tend to decrease due to the higher total cost of owning a home. Our results on the rapid response of house prices to unexpected changes in monetary policy provide direct evidence regarding the speed of house price adjustments, which may help policymakers better anticipate the effects of policy actions.”