Traditionally the relationship between interest and houses is that when interest goes down the demand for houses goes up. And refinancing helps increase cashflow for households. And when interest goes up the demand for houses goes down and so do prices. We are at zero interest rate. What happens to housing when the pendulum swings the other way and interest is jacked up so fast it makes Volker's head spin? An $800,000 house can be had for $400,000 at zero interest rate. At 12% interest will it be $200,000?
When interest goes up prices go down. Prices tend to conform to the same $2000 mortgage payment regardless of interest rate.
I recall that in the late 70's we had very high interest rates, 20% or so and some high prices.. I recall that the phrase "creative financing" came on the scene then and some spoke of "very creative financing".. I think that involved large transfers of Cocaine and multiple loans, they didn't divulge that much detail
The house will only be worth what the bank will loan you, if you cant get a loan for that much, it'll drop the value , i dont see the banks taking any large amount of new risk in housing when they are sitting on so many ",loan gone bad" homes.
Suffice it to say, it isn't a good scenario. Higher interest rates are going to kill demand and whatever demand there is, is going to pay dearly for buying (interest accumulation). The debt writers are going to have a tough time dealing with all this, especially as it goes up incrementally. Should be an interesting time, especially for builders/real estate professionals. -troll