[quote=Huckleberry][quote=Effective Demand]Regarding interest rates and housing prices.
The issue is WHY rates are high or low. Rates are high because of high inflation or high growth, Rates are low because of low inflation (or deflation) or low growth. If you put high rates in a low growth scenario, it would no doubt effect housing prices, just as low rates in a high growth scenario would.[/quote]
This is exactly spot on! That is why this time is different than in the past…[/quote]
But I don’t think my point is fully explained. The point I am trying to make is about monetary policy. Deadzone is both right and wrong, he is right that if in today’s enviroment we had 10% interest rates, house prices would fall. He is wrong to assume we would have 10% interest rates as that is a completely improper monetary policy relative to the conditions. Just as one can say that housing prices and interest rates aren’t linked, that is correct in that it assumes monetary policy reflects economic conditions but it is incorrect to say that if interest rates were too high (or low) relative to economic conditions that prices wouldn’t fall or rise.
That is the larger point that I am trying to make. Everyone is “right” and “wrong” in there points regarding interest rates and housing prices. But if you assume that monetary policy reflects economic conditions then, in general, interest rates and housing prices not being interlinked is “more right” (imho).
