Yes, I think we’ll see 2008-2011 pricing again, and possibly lower. The bubble lasted from about 2001-2005/2007, depending on the area. It did not start in 2004. Loose lending drove that bubble, but artificially CHEAP money — lots of it — and artificially low inventory are driving this one.

I also don’t think that buyers are “confused” in any way. They understand that buying when prices are high/interest rates low puts them at a potential disadvantage if they ever need to sell in the future, when rates are high/prices low. It’s never a good idea to bid against others when buyers are in a frenzy. That’s almost always a sure way to lose your a$$ on an “investment” unless you have extremely good timing and are able to get out at the very top…which is not very likely, statistically speaking.

And yes, there is no doubt that interest rates affect prices. The fact that prices went up along with rates in the 70s and 80s is due to the fact that Baby Boomers were entering their peak buying years, and women were entering the workforce en masse. Wages were rising, and unions were still fairly strong, so people were willing to pay a high price because they believed that their future pay increases would make their payments go down, relatively speaking, over time. Additionally, we went off the gold standard in the 70s, and everyone was afraid of inflation. I think that bogeyman is slowly being put to rest these days; deflation is the greater undercurrent. Wages are NOT going up, and probably won’t be going up anytime in the future, at least not for most people. People will have to sell off their assets in order to make it through their later years, as well, which will put even more downward pressure on pricing.

There is no reason to believe that housing prices will go up along with interest rates going forward, IMHO. If a buyer wants to wait things out for a bit to see how it all shakes out, that is a pretty sensible thing to do, IMO.