Comments on: Do High Mortgage Rates Kill Home Prices? http://housingstorm.com/2010/01/do-high-mortgage-rates-kill-home-prices/ Real Estate News from Real Estate Experts Sun, 12 Feb 2012 13:38:19 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Kirk Kinder http://housingstorm.com/2010/01/do-high-mortgage-rates-kill-home-prices/#comment-1186 Kirk Kinder Fri, 08 Jan 2010 15:31:07 +0000 http://housingstorm.com/?p=2468#comment-1186 Prices rose in the 70s because inflation also increased wages. Housing is tied to wages/inflation. This is the reason housing is so overvalued now. That traditional relationship broke down and real estate appreciated substantially faster than incomes/inflation. We could conceivably see higher interest rates without a corresponding increase in wages since so much excess capacity exists in the economy. With the government requiring massive amounts to fund operations, interest rates will probably move higher unless Americans purchase the vast majority of Treasuries. Right now, the Fed is monetizing the debt and foreigners are buying (at much lower levels than just two years ago). In this scenario, higher interest rates will decimate housing. Affordability will drop like a rock or prices will. If we get a 2% climb in mortgage rates, not inconceivable at all, housing could drop another 15 or 20%. This is based on affordability alone and ignores the shadow inventory. We have a ways to go, folks. Prices rose in the 70s because inflation also increased wages. Housing is tied to wages/inflation. This is the reason housing is so overvalued now. That traditional relationship broke down and real estate appreciated substantially faster than incomes/inflation.

We could conceivably see higher interest rates without a corresponding increase in wages since so much excess capacity exists in the economy. With the government requiring massive amounts to fund operations, interest rates will probably move higher unless Americans purchase the vast majority of Treasuries. Right now, the Fed is monetizing the debt and foreigners are buying (at much lower levels than just two years ago).

In this scenario, higher interest rates will decimate housing. Affordability will drop like a rock or prices will. If we get a 2% climb in mortgage rates, not inconceivable at all, housing could drop another 15 or 20%. This is based on affordability alone and ignores the shadow inventory.

We have a ways to go, folks.

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