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Evaluating the impact of federal reserve interest rate increases on U.S. residential mortgage refinancing trends (2010–2022)
The study examines the transmission mechanism of Federal Reserve Monetary Policy to the United States residential mortgage market from 2010 to 2022. The study used a quantitative research design, utilising monthly time series data from February 2010 to November 2022. The data were collected from multiple authoritative sources, including the Federal Reserve Economic Data database, the Mortgage Bankers Association, and the U.S. Census Bureau. The study revealed that the net equilibrium effect is negligible, at approximately 2.5 basis points per 1 percentage-point policy change. It is indicated that the comprehensive model incorporating housing market activity variables explained 72.1% of mortgage rate variation, significantly outperforming basic specifications. Contrary to theoretical expectations, unemployment rates were found to have a positive relationship with mortgage rates. In addition, the positive correlation between unemployment and mortgage rates challenges conventional assumptions, underscoring the need for the Federal Reserve to adopt targeted interventions tailored to real estate conditions. It is recommended that initiatives should emphasise the importance of support programmes to improve the affordability and accessibility of housing in the increasing interest rates. Initiatives that promote employment growth in housing-related sectors can help alleviate pressure on mortgage rates, particularly during periods of high unemployment. Finally, gradual adjustments to federal funds and mechanisms for observing consumer behavior in real-time are crucial to prevent disruptions in the mortgage market and enable rapid responses to adverse effects. The study is the first of its kind in analysing the transmission mechanism of Federal Reserve Monetary Policy to the United States residential mortgage market from 2010 to 2022.
Keywords: Monetary Policy, Federal Reserve, Residential Mortgage Market.
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