In other words, falling interest rates are a manifestation of monetary inflation, and monetary inflation often shows up as asset price inflation. We see this reflected in home prices when the central bank works to drive down interest rates. This, of course, is also reflected in consumer price inflation, which rose to forty-year highs in 2022. It is not a coincidence that after a decade of extreme efforts to inflate home prices after 2009, consumer prices surged nearly 25 percent in only five years, from 2020 to 2025.
Donald Trump and his allies continue to complain that the central bank isn’t inflating the money supply enough. Last week, Bill Pulte, Trump’s appointee to the Federal Housing and Finance Administration—and the head of Fannie and Freddie—complained that Powell and the FOMC weren’t forcing down interest rates enough.
Pulte wrote on X/Twitter:
Because President Trump has crushed inflation, Fed Chairman Jerome Powell needs to lower interest rates today, and if not Chairman Powell needs to resign, immediately. Fannie Mae and Freddie Mac can help so many more Americans if Chair Powell will just do his job and lower rates.
With these comments, Pulte is demonstrating that he, like his boss Donald Trump, subscribes to the standard Yellen-Bernanke inflationist model of monetary policy: the job of the central bank is to forever force down interest rates, churn out more easy money, and devalue the currency.
Pulte claims publicly that this somehow makes homes more affordable. As we’ll see below, though, the Fed’s easy-money policy of recent decades has not made home more affordable. Rather, Fed policy has helped to relentless increase home prices through the Fed’s asset purchases, interest rate policy, and monetary inflation.
Although Pulte is engaging in performative protests against “too-high” interest rates, it is more likely he is being motivated by the usual crony “capitalist” agenda: press for more monetary inflation so Wall Street will enjoy the fruits of more asset-price inflation.
Of course, that’s just speculation. But, his actual motivations are immaterial to the fact that following the recommendation of Trump, Vance, Pulte, et al, will only continue to blow up a housing bubble and place housing ever more beyond the reach of ordinary people.
Do Falling Interest Rates Increase Home Prices?
There is a fairly clear inverse relationship between interest rates and home prices. This is certainly obvious to real estate agents and their lobbyists who perennially lobby for lower interest rates because they know that lower interest rates lead to more home purchases and higher prices. This in turn, leads to higher commissions for agents.
The inverse relationship is reflected in this graph:
Source: Source: US Census Bureau and Freddie Mac.
There are many factors that affect mortgage rates, of course, but over the past thirty years—and especially since 2009—falling interest rates have coincided with rising home prices. In fact, falling interest rates slightly precede rising home prices, suggesting a causal relationship.
It’s easy to picture how falling interest rates lead to higher prices. When mortgage rates are low, it is easier to afford monthly payments on, say, a $300,000 mortgage. At three percent, the monthly payment is about $1700 per month. At six percent, though, the payment on the same mortgage is nearly $2300 per month. Clearly, there are more potential buyers for the house at the lower interest rate.
But there are important monetary reasons that explain why low interest rates drive prices higher. In the modern context of inflationary fiat currency, lower interest rates are usually fueled by new money creation, and this monetary inflation drives more asset price inflation.
This is because central banks “set” their lower interest rates through open market operations that involve increases in the money supply. In Understanding Money Mechanics, economist Bob Murphy explains:
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