The views I will express are my own and not necessarily those of my colleagues on the Federal Open Market Committee. Home prices, like other asset prices, have important effects on output and inflation. Home prices affect the economy in two primary ways. First, when they begin rising, the expectation of further appreciation tends to become built into the market.
That expectation boosts demand for homes, which stimulates new construction and aggregate demand. Of course, the sustained rise in prices can simultaneously sow the seeds of a market correction by making houses progressively less affordable relative to income, thereby limiting the demand for them and restraining additional construction. Second, higher home prices increase household wealth, thus stimulating consumer spending, another component of aggregate demand.