I’m thinking out loud here but: Lets game this out. Let’s say that interest rates go up significantly- say, to 12% or something. Ok, so then naively you would probably expect house prices to fall, because people won’t be able to make payments otherwise.

But what if you’re someone who bought a house in the low rates/high price era. Are you going to sell? No, because your mortgage is underwater- you can’t afford to sell. Or let’s say you’re one of those investment firms buying up everything. Can they sell? Not really, because again, they’d be technically insolvent as their debts would be much more than their assets. They paid cash for an asset and they won’t sell that asset at a loss.

So, if nobody is selling, do prices actually fall? Maybe not! In that case, financing a house for a first time homebuyer becomes truly impossible- high prices and high rates. The only buying that will get done is for cash, by the investment firms which own a lot of their housing stock outright, and have rental income to supply cash to buy even more of them. Interest rates don’t matter when you can pay cash.

So my prediction is that in a high rate/high price market, the era when a family could own their own home is coming to a swift close.