But as described here, there has historically been very little correlation between rates and home prices.
Depends on your time frame. I see the long term secular trend on prices going up and rates going down. Rates can’t explain the big bubble or the post-Cold-War bear market, but we know what caused them, and there is no reason to think that rates did not provide the trend line along which these shocks operated.
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This is a good point.
As far as the whole topic: I see what you are getting at, but I don’t know how much it really matters in the end. I suppose if we could know for sure that rates would stay permanently low, and the whole market knew that for sure that and priced it in, then we might start to see that correlation you speak of. But we can’t know that; uncertainty is part of the market and always will be.
But also, yeah, it seems kind of moot, because I just don’t agree with your forecast. You are banking on something (bonds) going from “really expensive on a historical basis” to “really, REALLY expensive on historical basis,” all based on “this time is different” style economic narrative. It sounds like straight up bubble-style reasoning, tbh… rationalizing why the past “rules” don’t matter any more, and why an already very extended trend can be extrapolated permanently into the future. I just can’t abide by that kind of reasoning –but, I am a value/mean reversion guy, so you can’t expect much different of me. 🙂
So yeah, the disagreement is more about just the direction of rates than I initially thought. But it’s still more than just that, I think. You are making a forecast on rates, and then a forecast on how the housing market will react to rates. And while your reasoning for the second part is plausible, it is pretty different from how things have played out in the past unless you really squint your eyes…. and I think that’s important. But I understand your reasoning a lot better now.
