Research Symposium

BIO

I'm a senior studying Economics and Political Science. I've recently been admitted to the Applied Master's in Economics program at Florida State University. My professional interests involve economic forecasting, data analysis, and statistical modeling. I enjoy using these at the DeVoe L. Moore Center, where I work with my colleagues on economic research and market analysis.

An Analysis of Federal Reserve Policy and the Cost of Housing

Abstract

The Federal Reserve's actions following the 2008 Great Recession inspired us to investigate whether quantitative easing—including purchasing mortgage-backed securities (MBS) and reducing interest rates to stimulate the economy—contributed to the surge in home prices after the COVID-19 pandemic. We attribute this price surge primarily to a substantial increase in MBS holdings. Our research asks, “To what extent, if any, does expansionary policy from the Federal Reserve affect home prices?”
We hypothesize that Federal Reserve expansionary policy has artificially boosted demand in both primary and secondary housing markets. Using a dataset from FRED, we analyzed 92 monthly aggregate observations spanning 2017 to 2024. We conducted a multivariate regression predicting changes in home prices using variables such as Federal Reserve MBS holdings, other Federal Reserve assets, the number of homes on the market, the federal funds rate, construction costs, and median days listed on the market. Our preliminary results identify MBS holdings and the federal funds rate as significant influences on housing prices. Specifically, MBS acquisitions increase demand, benefiting investors and home sellers.
Policy implications suggest the Federal Reserve could lower home prices by selling MBS holdings, as reducing loan availability decreases demand. However, limiting loans to wealthier buyers may unpredictably impact median sale prices and the rental market. To improve our analysis, we plan to refine our model and expand the dataset to include data back to 2007, capturing the Great Recession and its aftermath.

Keywords: Federal Reserve, MBS, Housing Prices