[quote=CA renter]2. If prices drop with rising interest rates, there will be less money from sales of starter homes (already happening, as starter neighborhoods were already decimated by late 2008). So, less money from the move-up market.
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That is what IMHO will greatly contribute to the further, significant fall of the housing prices – the decrease of number of qualified first time buyers (with large downpayments) and move-up buyers with rising rates. It will take a while though.

To get more move-up buyers the prices would have stay high and/or rates low. The people that cannot move-up won’t sell, so there will be lower inventory from them (of course, some HAVE to sell). There is also the increased number of people that have owned for a long time and/or downsize/retire who can afford to sell.

To get more first time buyers – prices would have to go down more (most likely driven by higher rates), or rates go down even further… )(or, better paying jobs, more jobs, sure!).

One compromise option is to keep the rates relatively low for a very long time (if they can)…a (lost) decade or so.