The Effect of Interest Rates on Single Family Housing

The single-family housing market has long been a cornerstone in the United States economy and represents a major portion of the nation’s overall wealth. With a peak total value of over $47 trillion dollars, the single-family housing market accounts for a great deal of capital for many individuals, as well as corporations (Chen, Katz, 3). For many Americans, the equity that lies in their homes makes up a majority of their net worth. That is why it is so important to understand how this market functions and what factors cause the most fluctuation in the price, sales rate, and overall market. In the last three years, single-family housing has been more volatile than ever before, especially in cities like Phoenix which have a growing population and prosperous economy. This led me to question what had caused this fluctuation and how can I prepare for the future? This thesis explores the effect that interest rates have on the housing market by focusing on the relationship between interest rates and the single-family housing market, focusing primarily on the Phoenix metro area. The goal of this thesis is to analyze the effects that micro and macro factors have on the single-family housing market to determine if interest rates are the driving factor.