Arty, I don’t disagree with you that declining values are not going to be totally alleviated by declines in interest rates (barring returns to the low rates of 2003, 30 year fixed at 5.3%). However as in the past both affect affordability, and therefore lower interest rates will actually affect how much prices decline. Will prices still decline, probably, but lower interest will blunt the impacts of ARM resets as they won’t be as severe on a percentage basis. Housing prices and interest rates do not move entirely independently. The purpose of this post was to provide information to the readers of this site on some easy methods to get a read on the direction of mortgage interest rates.
A lot of people on this site feel that housing prices are going to drop drastically but I don’t buy it. What has really happened over the last 10 years is a drastic devaluing of the dollar, rather than a drastic increase in real estate prices. If you were going to buy a house with gold it would not cost much more today than it would have 10 years ago.
Since major exporters like China have had their currencies pegged to the dollar this hasn’t led to significant inflation over the same time period. Will that continue, not likely.
