[quote=SD Realtor]You make a good point cali. Unfortunately I don’t believe there is reliable data to quantify the effects of higher rates on the San Diego submarket.
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I don’t think there is either. In a particular submarket who knows. Somebody could invent the next big thing in Carlsbad and create a Facebook like IPO. That would send prices in Carlsbad and some of the sounding areas up, but it probably doesn’t do much for 4S and certainly doesn’t help Bonita.
[quote=SD Realtor]
The question is, what will be the decline? Is it linear? Doubtful. Hard to say what it would look like. I don’t think looking back at say rates in the mid or late 90s is a good barometer either because that was a much more robust economy.[/quote]
I don’t know what the decline would look like. It could be rather volatile like we’ve seen recently or it could be a less pronounced slow grind lower. I just know that the carrying cost of somebody’s total debt is the wall that going to limit home price increases. I also know that it’s much easier to see asset price inflation in a declining rate environment because most assets are leveraged and speculation in assets increases as rates come down. We’ve had a positive feedback loop for assets over the past 30 years. If rates are going to steadily rise than that positive feedback loop is going to turn into a negative feedback loop, especially at the margin which is where price is determined.
Now you could certainly argue that we might get the best case scenario and the fed can successful maintain rates at 4-5% and incomes continue to rise at 3-5 percent. That at least opens the possibility of a continued rise in asset prices. The rise will be limited by the increase in incomes rather than incomes + declining interest rates.
