Great points CAR. I’ve often read that higher interest rates haven’t historically had an adverse effect on housing prices, therefore if interest rates rise now, prices won’t be affected. I think that argument always ignores other market dynamics. We do know that in the past higher interest rates do not have a high correlation with falling prices. But what we don’t know is what would have happened to prices if not but for rising interest rates.
With identical market conditions, economists can predict what will happen to prices. But we rarely have identical market conditions. Population demographics can change sharply by decade. My own expectation is that shifting demographics will (within the next 10 years) decrease the need for some kinds of housing (large SFRs) and sharply increase the need for others (retirement communities catering to retiring boomers). Yet the facts are nobody knows what us aging boomers will do. We may stay in our houses until we die. Or we may sharply downsize. But whatever we do, it will affect housing prices, just as interest rates will.
