[quote=fishsticks]
All things being equal, I’d rather buy a cheaper house with a high interest rate than an expensive house with a low interest rate.
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The problem, of course, is that all things are rarely equal.
The longer you’re planning to stay in a house, the more important a (low) fixed interest rate is to you, and the less important the price is. The price is still important, don’t get me wrong – but the longer you’re planning to stay in a house, the greater the weight on the fixed rate component.
Higher inflation will cause rates to go higher which will impact buyers’ ability to pay. But higher inflation will also drive rents up, thus making real estate in general more valuable. Which factor will dominate the other in the future is hard to say. (Something about predictions being hard, especially about the future, comes to mind.)
At some point, the low fixed rate vs. paying a lower price (with a higher fixed rate) is six of one, half dozen of the other… if you’re planning on staying in the home for a long time. But a low rate alone is clearly not a good reason to buy. It will only cover up a modest amount of mistake in overpaying.
