The Block is Hot: Federal Reserve Influence on the Housing Market

When you look at the list of factors affecting today’s housing market, more likely than not, you’ll see COVID-19 at the top of the list (and rightfully so); but rarely, if ever, will you see the Federal Reserve (the “Fed”), our country’s central banking system which conducts the nation’s monetary policy, controlling the amount of money circulated throughout our economy.[1] And it’s not because this fiscal behemoth hasn’t been as impactful, if not more, on buying patterns within the housing market; instead, it’s because few understand the long arm of the Fed and how its buying decisions affect our own.

In early January 2020, the Fed’s balance sheet sat at almost $4.2 trillion,[2] $1.4 trillion of which represented mortgage-backed securities. Simply put, mortgage-backed securities are groups of mortgage loans that are bought and sold as an investment. Around this same time, reported a year-over-year increase in housing prices.[3] Coronavirus was not yet recognized as a global threat. Not until late March did the country begin implementing lockdowns, sending the U.S. economy into freefall. In response, the Fed acted with expedience to thwart the effects of the pandemic on the health of the economy.[4]    

By June 2020, the Fed’s balance sheet had ballooned to over $7.2 trillion,[5] over $1.8 trillion of which represented mortgage-backed securities (up over $400 billion in just 5 months). These purchases suppressed interest rates which created an onslaught of home purchases, driving inventory down and prices up.[6] Although the Fed has slowed the rate at which its purchasing mortgage-backed securities – now buying only $40 billion per month[7] – these purchases keep mortgage rates low and the housing market red-hot.  The Fed’s balance sheet currently sits at over $8.2 trillion,[8] with over $2.4 trillion in mortgage-backed securities.      

Low interest rates have certainly fueled the overexuberance in the housing market, with some purchasers now shelling out 20% or more above the asking price. These aggressive purchases create an artificial inflation in property values which won’t continue to hold – and the savvy investor knows this.  Those who engage in bidding wars in an overly inflated market will find themselves upside down. 

As the nation and our economy continues to recover, like a gravitational attractor in some far-off distance, the Fed will trim its balance sheet by selling off securities and the interest rates will rise again. This sell-off will cool an overheated housing market and buyers can expect the good times to roll as the market (and prices) begin to shift in their favor. Whatever your stake in the housing market, just keep an eye on the Fed. 

[1] See also: The Federal Reserve System Purposes & Functions (

[2] FRB: H.4.1 Release–Factors Affecting Reserve Balances — January 09, 2020 (

[3] January 2020 Housing Market Trends Report – Research — February 7, 2020 (

[4] Here is everything the Fed has done to save the economy — April 13, 2020 (

[5] FRB: H.4.1 Release–Factors Affecting Reserve Balances — June 04, 2020 (

[6] Fed mortgage securities purchases draw fire in white-hot US housing market — May 25, 2021 (

[7] Statement Regarding Treasury Securities, Agency Mortgage-Backed Securities, and Agency Commercial Mortgage-Backed Securities Operations — June 10, 2020 (

[8] FRB: H.4.1 Release–Factors Affecting Reserve Balances — July 15, 2021 (