1) What if our Fed would increase higer interest rates in all other sectors but not housing or mortgage(may be it standardise a level say 6%) – what would be the situation if this happens?.
[/quote]
If you mean the fed sets the rates, then who knows cause the fed doesnt do that, it just influences rates as bob said.
If you mean that the government (regardless of which branch) steps in and says that morgages cant go above 6% no matter what, then effective demand will plumet. Not becuase people wont want to buy, cause they will, but because lenders will not want to lend. It is basic supply and demand. If the price is fixed too low, then demand to buy houses will outstrip supply of loans and more and more marginal buyers will be unable to secure financing.
That is unless the government starts offering their own financing to replace what is lost, but then they will be directly competing with the banks and will unleash hell on the banking sector as loans become unprofitable for them. Sounds like a totally retarded plan to me, but then I wouldnt put it past some of the ‘winners’ we have ‘leading’ this country.
