Of course higher interest rates will reduce affordability. That’s one of the key reasons we are all talking about 20%-50% reductions in housing prices from current levels.
Income remains a key determinant of affordability, increased interest rates not withstanding. The fundamentals don’t change, but changes in the fundamentals drive changes in values (previous post was in response to the idea that income based analysis was worthless).
Rates (and spreads) on jumbo and subprime loans will be higher than in the past couple years, but these products will remain part of the mortgage landscape the current lack of availability notwithstanding. Rates will go up, home prices will go down, but income (along with interest rate levels) will remain a key determinant of how low they go.
