Although low short-term interest rates probably supported housing demand and home prices for a time – an effect that helped to offset the negative effects on economic growth and employment of the steep decline in business investment – the role of monetary policy in fueling the speculation in real estate is still not clear.
Studies that have tried to address how much monetary policy contributed to the increase in house prices during this period are inconclusive. 8 And in general, the channel from interest rates to house prices has not been strongly established empirically, suggesting it might take a very large hike in the federal funds rate to have a substantial effect on real estate values.