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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: orkrious who wrote (172580)	6/14/2002 2:46:13 AM
From: TheStockFairy	Read Replies (1) of 436258

Correct me if I'm wrong please, but doesn't the price of housing have a direct correlation with interest rates? I'm setting aside the movement along the demand curve for the basis of my question, this deals with payments. These aren't exact numbers so just get the jist of what I am saying. If you can afford (loose term) $1000 per month for a payment and interest rates are 9%, suddenly interest rates drop to 4% and that equates to a $500 interest savings per month....wouldn't sellers just start filling in the interest gaps with a rise in housing prices? So, the buyers are still only paying $1000 per month, but the price of the house doubles. Is this what happens? I'm just a young whippersnapper so I haven't lived through one of these cycles yet. If that's the case, then when interest rates went up, then housing prices should fall to be in line with what the market should afford. I'm taking out factors such as 0% down, 50% gross income mortgage payments, ect. I think those types of deals will work themselves into the default numbers at some point.

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