We don’t know how much the housing price explosion correlated to historically low fixed interest rates. We do know it had a very high correlation to teaser rates and stated income. Those items for the most part have been fixed. The “Time Bomb” has already exploded. We will be primarily seeing the effects of that and the recession, going forward.
The value to be derived from any correlation of fixed rates to prices is going to be much more nuanced, especially in markets where prices have been beat down pretty well and owning is cheaper than renting,cash flow is produced or where seat equity is involved or some combination of these variables exist.
Another argument for the buy at high rate crowd is that they will refinance to a lower rate. How long will it take until these new great higher rates come around?How much will they affect price and how long will the great refinance rate take to come around? How will all this effect cost as compared to buying at the lower rate in the first place?How much is that refi going to cost? How does this play with paying higher rent than mortgage and foregoing any potential tax deductions?
I invite anyone to make a great data driven argument for proportional fixed rate/ price correlations that prove this theory of waiting for higher rates to be a winner and not a bias. I can’t do it so I need help. I believe Rich has said he can’t find a strong one. He has posted a chart in the bubble primer that shows fixed rates and price from 1977. I can’t see strong convergence or divergence except for times when low adjustable rates/creative financing were also in play. In fact, often times the theory is dumped on its head. Rising rates and rising prices, falling rates flat prices, etc.
It does seem that rates and price would seek equilibrium if left in a vacuum but there are to many other pulls.
In the real world people make decisions based on desire, comfort/risk and a multifaceted perception of value not fixation on one parameter, especially when that one parameter involves a lot of speculation as to when it will come and what proportional effect it will have on pricesand long term costs. Rates are a positive factor right now.
Standing by to eat crow…It would be worth it to see a good data filled argument on this point.
Yes prices are still going down.(even though fixed rates are very, very, very low)
