This is a very interesting topic and I’ve been thinking about the same thing. If interest rates go back up, home prices will need to come down. However, interest rates won’t go up unless we are in an inflationary environment. In an inflationary environment, salaries will increase too so that will put upward pressure again on home prices. It could very well be that the guy who buys today at a 20% nominal discount from the 2005 peak with a very low fixed interest rate could come out ahead of someone buying two years from now with a much higher rate, even though the nominal price might fall a bit between now and then.
I’m as much of a bear as anyone, but just such a scenario is worrying me a bit. I think the government is going to try to spend their way out of this mess with bailouts, new government programs and defense spending, etc… All of these will devalue the currency and would be inflationary. I hope I’m wrong…
