[quote=Jim Jones][quote=Rich Toscano]I don’t think the relationship between rates going up and prices going down is so cut and dried. Look back at the early 80s – mortgage rates went well into the teens and home prices did not drop. Market activity shrieked to a halt, or so I’m told, but prices did not actually go down.
Generally speaking, there has been very little historical correlation between rates and housing expensiveness.
That said, a sufficiently violent rise in rates could certainly take down housing prices (especially given all the other factors in play). But I just don’t think it’s the done deal that a lot of people think (ie, “It’s ok if rates rise because prices will go down”).
Rich[/quote]
Rich,
I have heard your assessment of the situation with regard to the high rates in the 80’s before.
Can you see it possibly being different this time around based on three factors which to me come to mind?
1) The higher debt load of the average US consumer and home buyer
2) The reduced savings rate nationally
3) The longer life span of baby boomers who are financing their retirement and long term care need through the use of reverse mortgages instead of passing down the home to family members. Passing down the home would reduces supply while at the same time maintain long term price stability of the asset.[/quote]
Agree with this, and add the following:
4. Wages were rising pretty regularly through the 70s and 80s, and they’re not doing so now. Globalization (competition with workers who earn a tiny fraction of what we do) was just getting started. Unions were still fairly strong, and people were more inclined to have lifelong/more stable jobs in the 80s, PLUS they were more likely to have defined benefit pension plans (and better health benefits), which enabled them to spend more of their income during their working years.
5. The peak home buying years for Baby Boomers were in the 70s-90s. I think that trend is about to reverse (related to #3, above).
Finally…if the PTB didn’t think higher interest rates were going to kill the market, why have they thrown away **trillions of dollars** in just one year in an attempt to keep interest rates down? I’d LOVE for them to agree that interest rates don’t matter, but so far, they are not going along with my program. 😉
