[quote=Jazzman][quote=FormerSanDiegan][quote=rockingtime]Since you have lot of money for cash down, I’d say invest in some good relatively safe place to get you 4-5% return.
In couple of years, when and if the interest rates hit high, I am sure the prices would come down
Real estate prices in CA are cyclical in general and if anyone says otherwise, please look at the history.
Of course no one knows the future..[/quote]
If you look at the history of housing prices and interest rates you will note that the periods of interest rates increasing (notably mid 1960s to 1980, for example) coincided with home price increases.
SO, higher rates does not necessarily equate to lower prices. In fact, historically it has been the other way around. Higher interest rates generally track over the long run with higher inflation.[/quote]
It may be difficult to show a direct relationship. Some argue rising rates first impact demand, but supply and demand then influences price. A more recent debate focusses on the effect that prolonged periods of monetary easing has on the housing market. These researchers seem to have found a corelation:
An exogenous 100 bps decrease in the short rate results in about a 50 bps decrease in the long rate on impact, and an increase in mortgage loans to GDP of about 0.5 percentage points. Yet the effect of the initial shock keeps building over time, and by year four there is about a 3 percentage point increase in the ratio of mortgage loans to GDP.In light of the response of long-term rates and mortgage lending, one might expect house prices to increase in response to an exogenous decline in interest rates. The bottom-right panel shows that this is indeed the case. A fall of the short rate of 1 percentage point builds up over time and leads to a 4% increase of the house price-to-income ratio after four years. (Or alternatively, an exogenous increase results in a sizeable decline instead.) Various robustness checks and sample splits further strengthen our core result that monetary policy has indeed a powerful influence on households’ willingness to take bets on the house. https://agenda.weforum.org/2015/02/what-history-teaches-us-about-house-prices-and-low-interest-rates/
Interest rates have been declining consistently for many years. In the last 20 years, the 30 year fixed rate mortgage has halved. House prices in San Diego, on the other hand, have increased 180% over the same period. So while price and interest rate indices mat not track each other precisely, there is more than coincidence at play here. And it’s probably not without good reason that imminent central bank tightening has everyone on tenterhooks.[/quote]
During the 70s and 80s, we had the Baby Boomers entering their peak buying years. At the same time, women were entering the workforce en masse, increasing the amount that people were willing to pay for housing (and other purchases). Nixon also took us off the gold standard in the early 70s. All of these things would certainly affect housing prices, and were likely the cause of most of the inflation during that time…and it was that dramatic and rapid rise in inflation that caused the Fed to increase interest rates they way they did in order to cool things off.
Higher interest rates do not cause housing prices to rise. All else being equal, they will cause housing prices to fall commensurately. Most people buy based on the PITI payment; interest rates can affect monthly payments dramatically. Note that when the Fed wanted to slow/stop the decline in housing prices and other assets, they dropped rates to zero. They are, in fact, causing people to pay more for assets than they would pay if interest rates were normalized.
