The average US home price could spike 20% to a record $500,000 if the Fed cuts interest rates too soon, expert says

• The median US home price could surpass $500,000 for the first time, one expert says.
• Housing guru Bill Pulte said prices could jump 20% if the Fed cuts rates before crushing inflation.

The average price of a home could soar to over $500,000 if the Federal Reserve cuts interest rates without crushing inflation first, a housing expert says.

"I predict if rates go down, housing prices will go through the roof," Bill Pulte recently told Fox Business. "You could see those home prices go up, in my opinion, 5, 10, 20%."

The median US home price has surged by over a third within the past five years, from $313,000 in early 2019 to $418,000 last quarter, St. Louis Fed data shows. A 20% increase would raise it to a record $501,000.

Pulte is the CEO of Pulte Capital — a private equity firm that invests in building-products companies — and his grandfather founded PulteGroup, a homebuilding giant.

He explained that aspiring homeowners could face a "two-pronged problem" of rising cost of housing and increased demand for homes if the Fed proceeds with cutting rates before inflation comes down.

Prices and rates

Home prices have jumped partly because of the rising cost of everything from land and construction to building materials and furniture.

Overall inflation leapt to a 40-year high of over 9% in the summer of 2022, spurring the Fed to hike its benchmark interest rate from virtually zero to over 5%.

The Fed increases rates to deter spending, hiring, and investing and raise borrowing costs, which typically cools demand and slows the pace of price increases.

Its rate hikes have lifted the 30-year fixed-mortgage rate from around 3% at the end of 2021 to nearly 8% in October, and they were still at an elevated 6.8% in February, St. Louis Fed data shows.

Prospective homesellers have shied away from listing their homes and losing the cheap mortgage rates they've locked in, which has fueled a shortage of housing inventory that has boosted prices.

There's also an affordability crisis. Potential buyers have balked at paying top dollar for their next home and taking on a hefty monthly mortgage payment due to higher rates.

If rates come down, that could boost housing demand while inventory remains constrained, Pulte said.

"You're going to have a flood of people trying to get into this stuff, and it's going to be a big problem, and you're going to see it everywhere," he said.

"That would be just insane, you would start to have a buying frenzy again much like during COVID."

The price impact of the demand surge could be exacerbated by inflation, which has ticked up over the last two months to 3.5% in March — well above the Fed's 2% target.

In other words, housing is already getting more and more expensive to build and maintain, and there could suddenly be a lot more people clamoring to buy a limited amount of homes.

Pulte isn't alone in calling a buying boom. Real estate tycoon and "Shark Tank" investor Barbara Corcoran has also predicted prices would "go through the roof" if rates fall by even one percentage point, and raised the prospect of a 20% spike last summer.