Quote:
Originally Posted by Azure
Home values need to decrease enough to make up for interest rate increases.
But will they? Likely not.
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That basically never happens.
What has happened in the past though (and probably will this time as well), is prices have stagnated, rates have dropped because of an economic downturn, and wage gains/inflation improve affordability over time.
So for instance, if you compare a mortgage today at 6% to one 5 years from now at say 3.5%, the latter is about 35% cheaper in today's dollars. So even if prices don't drop a penny, the affordability increase is about equivalent to a 35% reduction in prices.
That's exactly what happened in prior eras. From 1990 to 1995, sale prices were relatively flat (at least nationally), but after interest rate cuts and inflation, houses were about 40% cheaper to own in 1995.