[quote=gzz]AN, I think where Rich disagrees with us is not the importance of payment ratios, but that he thinks rates may revert to historical means and send prices down. [/quote]
No. You claim rates and home prices reliably move inversely to each other. (For instance, in another thread, you said, “In the end, a house that rents for $2000 will go up in price with lower rates as surely as a bond that pays $2000 will go up.”)
But as described here, there has historically been very little correlation between rates and home prices. I argue that there are some good reasons for this, but whether you agree with those reasons or not, the fact is that rates have had little influence on prices in the past. You are claiming a correlation (a causality, really) that isn’t there.
That is my main point of disagreement.
Additionally, I happen to believe that rates are more likely to go up than down, but that’s secondary to my main disagreement.
On that second (lesser) topic…
[quote=gzz]I really see no reason why long term rates in the USA won’t fall below 1% [/quote]
Core inflation is at 2.3% and trending up. Median CPI (which according to Fed research has been the best predictor of the underlying inflation trend) is at 3.3%. So, there’s at least one reason for you.
If you want to make the case for sub-1% long term rates, go for it. But to say that there’s “NO reason” long term rates will stay above 1%, when inflation is significantly above that number… come on.
