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> alleging that in a lower-rate environment sellers will raise prices Didn't we see exactly this scenario play out in 2001-2005 and again during Covid? > Head
by VWWHFSfQ 1y ago
> alleging that in a lower-rate environment sellers will raise prices
Didn't we see exactly this scenario play out in 2001-2005 and again during Covid?
> Heading into 2020, affordability was increasing—even in the face of rising home prices—as buyers benefitted from historically low interest rates and steady income growth.
> The national HOAM index fell from 101.94 in February 2021 to 98.22 in March 2021, indicating homes were no longer affordable for the median-income household.
Rates dropped which caused a demand-side surge (because more people could afford the mortgage) which quickly turned into a market dynamic that caused home prices to increase beyond median affordability.
https://www.atlantafed.org/economy-matters/community-and-economic-development/2021/06/03/low-interest-rates-inventories-affect-housing-affordability https://www.atlantafed.org/economy-matters/community-and-eco...
- nyeah 1y agoI'm afraid this discussion is in danger of sinking from finance into economics. Sure, what you describe is one thing that happens. Interest rates affect demand. Demand affects price. If you pick your data, you can find times when that mechanism appears to dominate and the model fits perfectly for a while. But in general it's simply not the case that interest rates, alone, determine house prices.
- VWWHFSfQ 1y agoI think the point was that dropping interest rates alone will not make anything more affordable. It will actually have the opposite effect: increase prices without any material change to the underlying property value. Fueled purely by the demand of newly-qualified buyers.
- nyeah 1y agoYeah, that is the point. But it isn't necessarily correct. It's an idea. Sometimes it's true.