{
  "title": "The Pricing-Out Phenomenon in the U.S. Housing Market",
  "publication": "IMF Working Papers, January 6, 2023",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2023/01/06/the-pricing-out-phenomenon-in-the-u-s-527856",
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  "summary": "The COVID-19 pandemic further extended the multi-year housing boom in advanced economies and emerging markets alike against massive monetary easing during the pandemic. In this paper, we analyze the pricing-out phenomenon in the U.S.",
  "sections": [
    {
      "heading": "Summary and scope",
      "content": "- Paper examines the pricing-out phenomenon in the U.S. residential housing market associated with higher house prices due to monetary easing during the COVID-19 pandemic.\n- Approach:\n  - Set up a stylized general equilibrium model.\n  - Use U.S. household-level data to quantify the effect of house price changes on housing affordability relative to interest rate changes.\n- Key high-level findings:\n  - Monetary easing decreases the mortgage payment burden but raises house prices.\n  - Higher house prices lower housing affordability for first-time homebuyers.\n  - Monetary easing increases housing wealth inequality between first-time and repeat homebuyers.\n  - Empirical evidence of the pricing-out effect for all homebuyers; effect is stronger for first-time homebuyers than for repeat homebuyers.\n- Emphasis on importance of accounting for general equilibrium effects and distributional implications of monetary policy when assessing housing affordability."
    },
    {
      "heading": "Model findings (stylized general equilibrium model)",
      "content": "- Monetary easing:\n  - Decreases the mortgage payment burden.\n  - Raises house prices.\n  - Lowers housing affordability for first-time homebuyers.\n  - Increases housing wealth inequality between first-time and repeat homebuyers.\n- Conclusion from model: General equilibrium effects can offset or reverse direct affordability gains from lower interest rates via house price increases."
    },
    {
      "heading": "Empirical findings (household-level data)",
      "content": "- Quantification focuses on comparing:\n  - Effect of house price changes on housing affordability.\n  - Effect of interest rate changes on housing affordability.\n- Main empirical results:\n  - Evidence of the pricing-out effect for all homebuyers.\n  - Pricing-out effect is stronger for first-time homebuyers than for repeat homebuyers."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Monetary easing should be complemented with well-targeted policy measures that can boost housing affordability, particularly for first-time and lower-income households.\n- During aggressive monetary tightening:\n  - Fall in house prices may be insufficient or too slow to fully offset the immediate adverse impact of higher rates on housing affordability.\n  - Well-targeted policies remain necessary to protect housing affordability for vulnerable groups.\n- Paper highlights the need to account for distributional implications of monetary policy in policy design.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2023/01/06/the-pricing-out-phenomenon-in-the-u-s-527856"
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    "Authors: Francesco Beraldi, Yunhui Zhao",
    "Published: January 6, 2023",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400229039.001",
    "Paper examines the pricing-out phenomenon in the U.S. residential housing market associated with higher house prices due to monetary easing during the COVID-19 pandemic.",
    "Approach:",
    "Key high-level findings:",
    "Emphasis on importance of accounting for general equilibrium effects and distributional implications of monetary policy when assessing housing affordability.",
    "Monetary easing:",
    "Conclusion from model: General equilibrium effects can offset or reverse direct affordability gains from lower interest rates via house price increases.",
    "Quantification focuses on comparing:",
    "Main empirical results:",
    "Monetary easing should be complemented with well-targeted policy measures that can boost housing affordability, particularly for first-time and lower-income households.",
    "During aggressive monetary tightening:",
    "Paper highlights the need to account for distributional implications of monetary policy in policy design.",
    "**Working Paper**"
  ],
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