[quote=SD Realtor]More often then not the homebuyer measures affordability by monthly payment as opposed to home price, (…) I The speculation about price depreciation is quite valid BUT I do not believe they will correlate to the rate hikes. How proportional will they be? I could not guess but once you hit investor return levels you will see the bottoms set for pricing. Again, I do not know what this is as it varies with each area. Similarly those who do not have 6 figure nest eggs to drop into homes will simply not be able to buy. They will not be able to afford the homes even with large price drops. I do believe the price drops will be there and will be nice to see. For those who have prepared correctly, they will get rewarded. For those who have an affordable payment locked in, they will be happy with the payment but unhappy with the depreciated asset and depending on the amount of depreciation they may not be able to sell without a loss.[/quote]

I believe you will be proven correct. Question is, when?

The prices drops will probably not be enough to compensate for the rate hikes when you look strictly at monthly payments. I think if the hike is big enough, we will see again more of the hybrid ARMs (5-7+ yr fixed rate) so again that will not help prices drop.

While I agree with 20% downpayment percentage-wise, I still think that being six figure for downpayment is quite a big chunk of money for the first time buyers (or people who sold their previous house without any gain – and their number will keep increasing). Of course one can go only 10% down and pay the PMI…I say it’s too large (amount-wise) in the current economy to put in an asset that has proven, gasp!, that it can actually depreciate substantially in few years (instead of doubling every, what, ten years?).

You say investor return levels will signal the bottom for prices. What is the minimum rent multiplier that is currently used by the investors – in areas like RB, PQ, Scripps?