Monetary Policy Effects on a Local Housing Market: Evidence from Westchester County, NY

Abstract

This study examines how monetary policy shocks affect residential housing prices in Westchester County, New York, a supply-constrained suburban market located north of New York City. Using a six-variable Vector Error Correction Model (VECM) estimated over the period March 2013 to July 2025, the study finds that a contractionary monetary policy shock produces a permanent negative effect on local median sales prices, with prices declining approximately 1.9% at the trough and settling at around −1.8% by month 48. Forecast error variance decomposition suggests that federal funds rate shocks may account for nearly half of all variation in Westchester housing prices at a four-year horizon. Two extensions complement the baseline analysis. Replacing the federal funds rate with an orthogonalized Monetary Policy Surprise series finds a sharper initial price response, consistent with markets gradually pricing in anticipated policy changes. Disaggregating by property type finds that single family homes are more sensitive to monetary policy than condominiums, with variance shares of 48.7% and 36.2% respectively at a 48-month horizon. The results suggest that monetary policy transmission to housing markets may be larger and more persistent in supply-constrained, high-income suburban markets than national studies would predict, motivating further research into how these dynamics vary across local markets with different structural characteristics.