Sorry, BG, but I have to disagree with your assertion that rich people are fools just waiting to be parted from their money. They will expect a certain type of house, but they won’t have a pre-determined price they are willing to pay for it without taking into consideration the houses above and below that level, and what those houses are selling for. They are not fools, and they have no intention of throwing their money away on anything, including housing. Why on earth would they offer $5 million on a place that is worth only $3 million? They simply wouldn’t do it. These are the people who tend to analyze everything, and you can be certain that they understand the relationship between asset prices and interest rates (some exceptions might be brand-new money with poor management and/or lottery winners who, statistically, stand to lose all/most of their money at some point).
And I disagree with you about what buyers are willing to settle for. Those 3/2, 1,500 tract homes in old neighborhoods are different today than they were 30+ years ago. They are often older, and more likely to have crime issues than they were back then. People don’t have higher expectations these days; the neighborhoods have changed. If crime rates are higher and houses are older, people will not want to pay as much as similarly-situated buyers did 30 years ago.
