This paper examines the pricing-out phenomenon in the U.S. housing market, which occurred due to higher house prices resulting from monetary easing during the COVID-19 pandemic. The authors use a stylized general equilibrium model to show that while monetary easing reduces the mortgage payment burden, it also increases house prices, decreases housing affordability for first-time homebuyers, and increases housing wealth inequality between first-time and repeat homebuyers. The paper then uses U.S. household-level data to quantify the effect of house price changes on housing affordability compared to interest rate changes, finding evidence of the pricing-out effect for all homebuyers. The authors suggest that policymakers should consider the potential impact of monetary policy on housing affordability when making decisions.
