Central Bank Communication and House Price Expectations

We use a series of online surveys to study how US consumers’ house price expectations respond to interest rate expectations. Communication about interest rates has little effect on average house price expectations, since households have heterogeneous beliefs about the relationship between interest rates and house prices. When coupled with an explanation of the mortgage rate channel, communication about interest rates has much larger effects on house price expectations. We also show that audio and visual communication have additional effects on expectations beyond the effects of text-based communications. Consumers’ personal experiences appear to shape their mental models of the housing market and the responsiveness of their house price expectations to interest rate expectations.