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Two-Minute Take: Interest Rates and the Housing Market

December 10, 2018 3 minute Read by J.H. Cullum Clark
The Federal Reserve is considering slowing down interest rate hikes in 2019. What does this mean for home buyers?

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.   

How will it impact low-income home buyers?

High home prices are good for sellers (provided they don’t turn around and buy another home) but bad for buyers. The high and rising prices of recent years have presented difficult challenges to first-time buyers, particularly younger, lower-income families. Home ownership rates among Millenials and lower-income Americans, particularly African-Americans, and Hispanics, have plunged over the last decade.

An end to Federal Reserve rate increases isn’t necessarily good news for these families if it fuels the upward spiral in home prices. What would help them most is a building boom to alleviate housing shortages in America’s thriving cities and towns.


J.H. Cullum Clark
J.H. Cullum Clark

J.H. Cullum Clark is Director, Bush Institute-SMU Economic Growth Initiative and an Adjunct Professor of Economics at SMU.  Within the Economic Growth Initiative, he leads the Bush Institute’s work on domestic economic policy and economic growth.  Before joining the Bush Institute and SMU, Clark worked in the investment industry for 25 years.  He served as an equity analyst and portfolio manager at Brown Brothers Harriman & Co. (1993-96), as a portfolio manager at Warburg Pincus Asset Management (1996-2000), as President and Chief Investment Officer of Cimarron Global Investors, a Dallas-based hedge fund firm (2000-02), and as President of Prothro Clark Company, a Dallas family investment office (2002-18).  Prior to entering the investment industry, he served for one year on the staff of the U.S. Senate Select Committee on Intelligence.

Clark fulfilled a lifelong goal by earning his Ph.D. in Economics at SMU in May 2017, and subsequently joined the faculty of SMU’s Department of Economics.  His research has focused on monetary policy, fiscal policy, financial markets, economic geography, urban economics, modern economic history, and economic growth. 

Clark's volunteer leadership activities include serving on the boards of Uplift Education, the Eugene McDermott Foundation, the Yale University Art Gallery, and the Foundation for the Arts, as well as on the investment committee of SMU.  He earned a B.A. in History from Yale University in 1989 and an A.M. in Political Science from Harvard University in 1993, in addition to his Ph.D. in 2017.  After graduating from Yale he lived for one year in Japan.  Clark and his wife Nita have three daughters: Lili, Annabel, and Charlotte.

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