As a result of the federal reserve action, interest rates for residential loans go down. Which of the following is most likely to occur as a result?

• A. Mortgage applications fall
• B. Housing prices go up
• C. Property taxes rise
• D. Mortgage payments increase

Answer: (B)

When borrowing costs for homes fall, more buyers can afford to purchase, so demand for housing tends to rise. If the supply of homes doesn’t increase fast enough to meet that higher demand, prices will go up. That’s why the most likely result is housing prices rising.

Lower rates don’t cause mortgage applications to fall; they usually encourage more applications because buying becomes more affordable. Mortgage payments also don’t increase when rates drop; they decrease for any given loan amount. Property taxes aren’t directly driven by federal-rate changes—they’re set locally based on assessed value and local tax rates, so they aren’t the immediate result of Fed actions.