[quote=davelj][quote=ucodegen]Yes, the interest rates and house prices move in opposite directions.[/quote]

This is actually not borne out by the facts. If you go back and look at the late-70s and early-80s, when rates increased dramatically, housing prices increased at a very high rate as well. If rates are moving up, it’s probably because of inflation. And if inflation rears its ugly head, there’s a good chance that it will show up in rents, and thus housing prices. Of course, the “next time could be different.”[/quote]

As an active participant in the real estate market at the time, I can tell you that the conditions described by davelj (high inflation, rising interest rates, rising real estate prices) did exist in the early to mid-1970’s, triggered by Nixon’s ending of the right to redeem dollars for U. S. Government gold. Dollar holders went looking for places to put their dollars, and a non-trivial percentage of dollars (from both foreign and domestic sources) flowed into U. S. real estate.

I can also tell you that when Volcker’s inflation-killing policies raised interest rates between 1979 and 1982, prices fell abruptly by one-third or more, and San Diego mid-market houses became nearly impossible to sell unless seller financing was provided.

It can happen either way.

The Federal Reserve and Congress will determine what we see this time by the cleverness (or lack thereof) they show in future monetary and fiscal policy. In other words, nobody knows what will happen.