Monetary Policy and Home Buying Inequality

Monetary policy influences who becomes a home owner. Home purchases by low- and moderate-income households are particularly sensitive to mortgage interest rates, as these households' budgets are tighter and they more frequently come up against binding payment-to-income ratio constraints in credit decisions. Exploiting the timing of high-frequency observations of mortgage rate locks around monetary policy shocks, I find that a 1 percentage point tightening of mortgage rates lowers the presence of low-income households in the population of home buyers by 1 percentage point, and of low- and moderate-income households by 2 percentage points immediately following the shock. Effects are substantially stronger among first-time home buyers, and persist for approximately one year. The estimated effect of monetary tightening on the share of home purchase loans by underrepresented minorities is statistically insignificant