The housing supply is stable, however, in the short term because building new dwellings takes time and because housing construction in any case will be low in relation to existing housing stock. Therefore, in the short term, prices for resale homes will generally be determined by demand. The demand for owner-occupied dwellings depends primarily on the interest rate level, household income and household expectations concerning future income growth. Lower interest rates mean lower borrowing costs connected with the dwelling and thus higher demand for housing. This pushes up house prices. Developments in the labour market are important for house prices because they affect household income. Increased unemployment leads to expectations of lower wage growth and increased uncertainty concerning future income growth. Thus, demand for owner-occupied dwellings falls. Banks may also be more reticent about providing loans when unemployment increases. If expectations about future house price inflation rise, it will be relatively more favourable to purchase a dwelling now rather than later. The result is increased housing demand and higher house prices today. Price expectations depend both on observed developments in interest rates, income and house prices and on household expectations of future interest rates and income growth. 2  BIS Review 39/2005  Housing demand also depends on population movements and demographic conditions such as cohabitation patterns, population size and the number of individuals in the start-up phase. Net migration to central areas has been positive in recent years. This has affected regional house prices in different ways.

Therefore, it's critical that we understand how these transformations could affect the economy and the financial system, as well as monetary policy implementation and central bank balance sheets. In addition, we must think carefully about proper regulation to protect consumers and investors and ensure the stability and safety of the financial system.1 So, what are some of the things that the New York Fed should be thinking about? To start, digital transformation could have implications for markets and for our interactions with counterparties, as well as how we carry out monetary policy. Like in the example of music, change is already underway. Take the Fed's overnight reverse repo (ON RRP) facility, for example2. The ON RRP facility has broadened the set of our counterparties and diversified the type of instruments on the liability side of our balance sheet. This facility has supported the control of short-term interest rates according to the FOMC's policy direction. This has had profound effects on the composition of liabilities on our balance sheet. Traditionally, the Fed's liabilities have primarily been paper currency and reserves held by banks at the Fed. For example, a decade ago, paper currency totaled $ trillion and bank reserves $ trillion. But since then, we've seen a dramatic change in the makeup of the liability side of our balance sheet. Today, in addition to $ trillion of currency and $ trillion of bank reserves, there are $ trillion in overnight reverse repos, representing funding from nonbank sources such as money market funds.