Rustico, I’m not sure I follow your comment “The ones that most likely aren’t getting a break are the ones that are doing the actual buying.” I guess the real question is what you both mean by break? A discount? A repreive? A Free Lunch?
The first buyer you describe (saving, living within their means) could get a break on pricing today, but I think the majority of people here would say prices are falling, and all the factors that drive price down are increasing. Buying today may be better than a year ago, but buying a year from now will probably be better, and 2 years better still. Although no one really knows, we all agree prices are dropping.
Which gets to Alex’ last question: if you look at the fundamentals of affordability, prices are too high regardless of rates. Higher rates will probably end up having little affect on those waiting to buy, and in fact will probably dry up more demand until prices further correct. The negative effect of rising rates will be on those who already over-extended to buy with exotic mortgages.
Your numbers change in your example, and I didn’t check a mortgage calculator but a 2% rate increase on a 30% lower home is most likely the break in pricing I think Rustico mentioned. I don’t think the payment would be the same, but the depends more on the type of loan and down payment. You get a 15yr fixed at 8 or 9% on 30-40% lower prices, you’ll be a lot better in the long run, unless of course you’re a speculator and want to sell at 100% profit after 6 months. That’s the biggest group of buyers the rates will scare off, which will drive prices down more.
Logically it makes more sense to take an ARM when rates are high, but no one thinks logically about housing. At least outside this forum.