If you go back and look at the data from the late-70s and early-80s when inflation was really raging… housing prices went way up… despite the fact that interest rates went way up as well. Rents were going up at the same time.
Don’t get me wrong, I think it’s important to have sub-6% mortgage rates for the next 12-18 months as we clear out most of the foreclosure detritus, but I don’t think higher rates are going to have much impact on prices 2+ years out. May keep them from going up, but I think prices will be largely stabilized by then. And while some may say that buying now in anticipation of higher rates later is a “buying panic,” it’ll sure clear out a lot of inventory. Rightly or wrongly, anyone with a long-term view is more “payment sensitive” than “principal-balance sensitive.”[/quote]
You may be right. My answer was to a hypothetical question. As I mentioned, I don’t think 8% interest rates will be tolerated, so I am not predicting that any of the consequences of an 8% rate will actually occur. I don’t think they will, because I don’t think we’ll see the 8%.
Things change if the Fed etc can get inflation up to a high enough level, because then house prices will not be reduced by 8% interest rates, and that will enable the Fed to tolerate 8% rates. It would be the 1970’s all over again. I think we are likely to see a repeat of the 1970’s in inflation and growth rates, but my expectation was that it would take more than 2 years to go from where we are now to near-10% CPI inflation.
