[quote=AN][quote=CA renter]The Chinese family who bought with cash can accept a 3% return, and that might be just fine for as long as all other investments, especially “risk-free” bonds, are yielding practically nothing. But how long would they be willing and able to hang on if 10-year US Treasuries are yielding 6% or 7%, or more? And what if rents go down at the same time, and they’ve had a few bad apples as tenants? What would you do?[/quote]
When’s the last time you see US Treasuries yielding 6-7% while rent went down? If Treasuries yields 6-7%, what kind of appreciation do you expect from housing?[/quote]
In the late-90s/early 2000s, 10-year Treasuries were yielding over 6%, and rents were going down in certain areas. In other areas, rents were stable. They really didn’t start climbing dramatically until around 2005. Also, the early-90s, mid-90s, and pretty much everything before that until you get to the 60s, when rates were lower. These low rates are anomaly, historically speaking.
If rates go that high, I expect housing prices to fall, not rise. Unlike the supply-siders, I think that rates can (and will!) rise not only when the economy is strong, but when the economy is weak. Note what happened once the credit bubble started bursting in ~2007. Rates were going up as defaults were mounting, which is why the Fed/govt intervened. Note what happens in Europe when defaults are expected to rise and the economy weakens…interest rates shoot up, not down.
