Over the very long term and I'm talking 50+ years it won't matter.
Sure, because, over long time horizons, real rates of interest are remarkably stable. For instance, it took about 150 years for real rates to drop from 3.5% to 2.5%. Therefore, when looking at long time horizons, we can ignore interest rates.
Over the shorter term cycle lasting perhaps 3-7 years for RE to me it seems interest rates, credit conditions and peoples perceptions of home appreciation potential drive value as much as even the changes in incomes and supply/demand.
Yes, there is no doubt to any of that. Although, I think in regards to interest rates (real rates of interest) and the experience of the last 15 years, up to 2002/2003 or so, is that embedded inflation expectations have slowly been squeezed out of long-term mortgage rates. Consequently, an understanding of the role of interest rates in asset prices helps one to understand the recent behavior of house prices, and why they shouldn’t perform quite as well over the next 20 years as the preceding 20.
Take the California speculator expecting annual double digit appreciation the next decade with a 1% pay rate on his overpriced bungalow selling at 35-50 times gross annual rent and cap rate at 1 or 2% for how foolish it all got at the top.
Speculators are going, and are getting, killed in California. |
