[quote]If this is the new reality with rates, how long until we can expect a downturn in prices that would result in a comparable monthly payment that one could have secured in October? i.e. What is that lag time between risen rates and the resulting decrease in home price? [/quote]
I dont know there is one. Interest rates are a very small part of the overall demand equation of housing. Basically, most people only care about interest rates once they are already about to buy.
IF, and that is an IF, your theory actually holds, I would say that the effect will be next September. This increase will cause panic amongst the CURRENT buyers, increasing short term demand, and then we hit spring (only 3 months away) and the high demand months of April-Aug. Maybe this pulls some spring buyers out now in a panic, leaving fewer at the end of the season in Sept for the ‘didnt sells’ of the summer to compete for. But that is nearly a year away, and there are tons of variables that could override any effect this will produce.
Access to money is a much much better measure to cause price declines. If the FHA increased their costs/downs and/or the GSE’s went back to the pre-crisis limits, then you would see price declines following demand drying up. (That is why you will never see that.) Marginal changes in costs of the money, when historicallly very low, wont do much.
