The Federal Reserve’s Historical Impact on Real Estate
Has the Fed Painted Itself Into a Corner?
Over the last 70 years, after its independence from the treasury in 1951, the Federal Reserve (the Fed) has used monetary policy to navigate the booms and busts of the U.S. economy, striving to bring the economy out of a recession as quickly as possible and piloting an overheated economy to a ‘soft landing,’ with mixed results.
What has history taught us about the Fed’s relationship with real estate? Our Vice President of Financial Planning and Analysis, Jeff Lanier, has put together a timeline of Federal Reserve influence on the market that can lend important perspective to title agencies uncertain of their next move.
The Booms and Busts of the U.S. Economy Through the Decades
According to Jeff’s white paper, after both World Wars, an economic expansion created major opportunities for real estate professionals. Consumer spending, low inflation and high employment drove unparalleled prosperity, especially from 1946-53. But reduced government spending and an industrial slowdown resulted in a recession. The Fed responded by cutting the funds rate and increasing the money supply by buying securities to provide market liquidity.
Then, to avoid an overheating economy, the Fed began tightening its monetary policy with modest increases in the discount rate and a more cautious approach to money supply growth. With the resulting slowdown in the economy a roller-coaster effect, known as the “business cycle,” emerged and has repeated itself with stomach-churning consistency ever since.
And then there was the small matter of the global financial crisis. The “temporary” policy response was the Fed’s foray into direct intervention in the housing market. Could it happen again? The Fed may have no choice should another crisis emerge.
Looking to the Future
What do these events foretell for your agency? Consider what steps can you take to create your own soft landing in a volatile market.
For the complete history of the Fed’s fund rate and its effects on the market and other valuable information, download our whitepaper.
Interested in more? Check out these white papers:
CFIUS Impact on International CRE Transactions
Enhancing the Value of Your Agency
Understanding the 2021 ALTA Policies