Just wanted to pass along some insightful reader comments in response to Ken Rosen’s theories on where interest rates are heading:
“I don’t necessarily disagree, but what did he say about the length of time we can expect rates to stay this low, and what happens when they start to rise? As an economist, he should be pointing out that there is a balance; and that prices will react (decrease) if interest rates are increased.
So the question becomes, does the proportionate rise in rate offset the decrease in price? For me, especially in SF, price is a big deal since our tax rates are tied to price and I’d much rather have a low cost basis. Another point to consider is the impact that raising interest rates will inevitably have on the broad basis of home owners with variable rate loans. It’s not a good impact, let’s leave it at that for the sake of this discussion.
This fact probably is more a signal that rates will remain low since no one but the sadistic want to see more homeowners pushed out and more bank foreclosures. The real estate market is very fragile right now. Several external forces are controling “prices” unlike the heyday when real estate itself was rising tremendously. For me, I’d encourage potential buyers and sellers in that it looks like the worst is behind us and very few are predicting anything remotely close to catastrophic in residential real estate—so it may make sense to consider a transaction if you think you’ve found a good home.”
Good thoughts, all of them. Ken’s theory was based on the fact that he thinks the economy will continue to steadily improve. As a result, the Fed won’t keep interest rates as low as they are.
Any further thoughts, readers?