I think there will be a different causal relationship between prices and rates when rates drop next. During 2001-2005, mortgage rates dropped and exotic loans with low teaser rates CAUSED housing prices to increase due to the resulting increased demand. The next time around rates will be declining BECAUSE housing prices are declining – so there will be a reversal in causation. I wouldn’t worry about it. At best I think the Fed lowering rates will merely put a floor (much lower than where we are now) below prices.
