inverse relationship maybe

i had a wrong-number caller and now i can’t get back to sleep. i surfed around and read an article on yahoo finance with a quote that seems a little questionable. it’s about people on the sidelines of the real estate market waiting for lower prices before they buy.

Bruce Norris, president of The Norris Group, a real estate investment company, said now might be the best time to purchase a home, if the buyer plans to live there for 10 years.

“I’m not sure that I wouldn’t rather pay today’s price with today’s interest rate than count on a big discount and the wild card that interest rates might be very different,” Norris said.

“It would not shock me to have a 10 percent interest rate by the end of this negative cycle,” he said.

i agree with bruce’s assessment that 10% mortgage rates would not be a shocker. but i wonder what affect he thinks that is going to have on prices. he seems to be implying that purchase prices would not adjust to a level reflecting the higher cost of financing. i guess, to be fair, he says that he is not sure about what he would not rather do, and he offers the caveat that his advice is for people planning to buy and hold over a 10 year period.


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2 responses to “inverse relationship maybe”

  1. Dan Avatar
    Dan

    Well the premise of your argument stems from the idea that there will be parity in the price difference then compared to the increase in interest rates – historically this has rarely if ever been true, especially with trending price levels.

    Of course, it’s all hypothetical conjecture – the point is well taken.

    –Dan

  2. eric Avatar
    eric

    your point is well taken too dan. i will add to my argument that given the number of ARMs due to reset in the next 5 years, a tightening credit environment, a housing market already in recession, and a hypothetical situation of 10% rates, the conditions might exist to give rise to the anomalous parity you pointed out in my argument. still purely conjecture, but i like to speculate about these things. ;)

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