Turns out prices have to go down when the fed doubles rates. By my math, a 30% correction is needed to make up the difference in terms of monthly affordability - meaning a $500k house at 6% is the same as a $750k house at 3%.
Should it be a $750k house at 3% is a $500k house at 6%?
If the average person is buying a house to hold for 7 years - and you're expecting only 2 years to be at elevated rates before you can refinance at 3% or less - then you'll settle for a lot less than a 30% correction.
Does your 30% figure doesn't include property tax - or mortgage interest deduction? If you include those - I'd imagine you're looking at a <20% correction.
I think we’re going to see a lot of new things this recession. The high inflation preventing ‘quantitive easing’. Usually the middle class can bear all kinds of hardships but from my observations they’re reaching a point where they’re tapped out and can bear no more. Many landlords think they’ll simply raise rents to cover increases in interest rates because renters are less able to buy their own property due to the same high rates. But tapped out renters cannot afford the higher rents for long and landlords will have to take a bath. If we go into a reverse wealth effect deflationary spiral we can’t lower interest rates to get out of it due to the risk component of interest will start to dominate over the risk free rate.
1. After 9% inflation
2. With a <3% mortgage rate
3. If it would mean realizing a loss
4. When they can rent it for more than their PITI
Prices do not have to go anywhere.