In late January 2024, Senator Elizabeth Warren sent a letter to Chair Powell urging rate cuts to improve housing affordability. The logic sounds impeccable: lower rates mean lower mortgage payments, which should help buyers.
But economics is rarely that cooperative.
Housing is not a demand problem — it’s a supply problem wearing a monetary costume.
The Lock-In Effect: Monetary Policy Meets Reality
The U.S. housing market is frozen, not broken. Millions of homeowners are sitting on sub-3% mortgages — financial golden handcuffs they have no incentive to remove. Selling means giving up cheap debt and taking on a much higher monthly payment.
The result?
Listings collapse
Turnover dries up
Supply becomes inelastic
High rates make buying painful. But cutting rates doesn’t magically create houses. It just changes who can bid.
The Perverse Outcome of Rate Cuts
If rates fall meaningfully:
Demand surges
Supply barely moves
Prices rise
This is the cruel irony of housing policy. Efforts designed to improve affordability often inflate prices instead, transferring wealth to existing owners while leaving first-time buyers no better off.
We’ve seen this play out repeatedly over the past decade. Monetary stimulus pushed asset prices higher faster than incomes, turning housing into a generational divide rather than a social equalizer.
Lower rates might help transaction volume. They might help builders — eventually. But as a short-term affordability fix? They are blunt, leaky, and prone to backfiring.
Why This Matters for Investors
For real estate investors, the lesson is clear:
stop anchoring on the Fed Funds rate.
Long-term housing value is driven by:
Zoning and regulation
Demographics
Construction costs
Labor availability
Geographic constraints
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