Does The Federal Reserve Want Home Prices To Fall?

The Federal Reserve and home prices.
The aggressive approach to interest rate hikes has had a big impact on the real estate market.

It is no secret that the Federal Reserve has taken an aggressive approach with interest rate hikes over the past year in an effort to combat record high inflation. Needless to say, housing is generally the first sector of the economy to feel the impact of these rising interest rates. So this leads to the question: “Does the Federal Reserve want home prices to fall?” The short answer to this question is: YES! To better understand this dynamic, you need to consider larger economic factors at play right now.

The great real estate reset

The Federal Reserve’s interest rate hike strategy is in part intended to give the housing industry a “reset” per Federal Reserve chairman, Jerome Powell. Of course, in doing so this has led to widespread confusion among both home buyers and sellers. What do confused people tend to do? Nothing. This is the whole point and therefore achieves the goal of slowing down the housing market. After all, Powell has already stated that there is a “big imbalance” in housing and that it will take a “difficult housing correction” to fix things.

The domino effect of a home purchase

In order to slow inflation, consumers have to slow consumption. For most Americans, the largest financial transaction they will make in their lifetimes is a home purchase. Buying new or existing housing increases consumption of more tangible hard goods and that creates demand and that drives inflation and pricing. Therefore, if you slow down the purchases of homes, you will also see a domino effect of other spending that does not take place. Needless to say, this underscores the importance of slowing down the housing market.


In closing, hopefully this article provides a little more insight into the economic dynamics taking place at the moment. It is important to remember that we have been combating a 40-year high in inflation and therefore the solution will not only be painful for many, but will also take time. While there are certainly other factors at play in the current housing market, we do expect buying and selling activity to stabilize or decrease this year. Our success in bringing down inflation will impact where interest rates go moving forward. Any relief to interest rate hikes could spur more housing activity, particularly as we get into the typical spring home buying season.

Are you looking to buy or sell real estate in South Florida? Contact Natasha at Live South Florida Realty, Inc. today! Also, be sure to download the free Florida Home Search app for your smartphone or tablet.

By natasha moore

REALTOR® with Live South Florida Realty, Inc.