I've posed this question before, does this mean housing prices are going to drop faster? Is affordability (monthly payments) the bottom line or is it price? I'm hoping it's the former because I've got a lot saved up.

Kevin - it's all about supply and demand - Affordability has some weight but it is the excess supply which is highly driven by foreclosures, that are driving prices down. Once the foreclosures are gone and there is less inventory prices will stabilize.

I'm hoping interest rates go to 10%. Prices will have to adjust downward, and many with ARM's will need to sell or foreclose. This should help the market readjust faster. Those who have been frugal and saved for large downpayments will have their day in the sun.

Kevin, (and this isn't meant to dump on you specifically but I'm going to use your question as an example)... there is an alarming tendency among the public and the media to look for the singular, one size fits all, monolithic answer to overwhelmingly complicated questions.

This applies to the health insurance reform debates, the economic debacle as a whole, the smaller mortgage and housing debacle and twenty other topics in the news everyday.

The phrase 'affordability" is a shorthand description of the myriad and often quite complicated factors that are represented in the word.

How the various components that make it up get weighted or are even included in any given instance of it's use varies far too much for it to have any credibility beyond the very superficial.

There are no easy answers but yes of course higher interest will affect how much house can be bought that week and sellers will be pressured to reduce their price accordingly.

The still unanswered question though is by what degree this will (or won't) happen in any given example... oi stop me!

See my point Kevin?

Hey! Who is that Lyle guy? He sounds like he has a clue.

Do a funny post in the sandbox and...

My crystal ball predicts that as soon as we hit the deadline for 8K credit for the first time homebuyers (November?) and the mortgage rates will hit 6%, the sales will go down dramatically, therefore causing further price drops. The sad part is that the buyers will still have to pay the same money for a cheaper house, because of the rate increase.

Any way it goes - banks win and simple hardworking people lose. As usual...

You obviously knew what I was getting at, so why the condescension? It seems you found my question a bit glib, but it's a comment on a blog post. The format almost necessitates generalizations. What's your point Lyle? You clearly agree with me.

Darwin Rules - I am not sure why you would want rates to go up to 10%. Sure it will drive down price but you payment would relatively be the same because the increased interest rate. You need to take into account the cost of building a house - prices are never going to drop below that especially in the "Nicer" areas. It's all realative - if prices go down and interest rates go up then you are in the same boat you began in

Joe hyperbole?

Kevin- no snark intended. overtones of vent related to something else. sorry if offended; I'm also sitting on a big pile and want it to have the most effect when I buy.

MrRational - Sit on your money - I took the other route and chose to invest it recently in my dream home because of the record low interest rates. The same house would have cost me $300 more a month 6 month's ago. If prices drop I don't care - this is a long term investment which is what people lose sight of. I hope to live in it until I retire.

When will you be happy? When they are give homes away for free......Good Luck

The real estate market during the boom period saw values go up 20% to 30% a year. That is NOT NORMAL. This mess we are in should be no surprise to anyone who has owned a home. The value of your home is intended to keep up with the pace of inflation, which is 3% to 5% a year. You will be lucky to see your home appreciate any more than 10% in any given year at this point forward.

I believe the first time homebuyer tax credit will be extended for another year, even if Bernanke is forced to raise rates. I would not be surprised if they increase the tax credit incentive. Please remember, that even if we have hit the bottom, all that means is that the pace of depreciation is slowing down. Instead of seeing year over year losses of 20% you might see a yearly loss of 15%, as indicated by the Case-Shiller Index. I do not see home values stabalizing until 2011, when the Pay Option ARM's recast, and the "Moratorium on foreclosures" end. All that is doing is delaying the inevitable. But the good thing is that it is keeping homes off the market. The numbers are skewed. If any of you really think we have seen the end and we are at the bottom, think again. Foreclosures, short sales, and REO's still make up the majority of sales. It will be for atleast another year. As far as mortgage rates are concerned, good luck getting a loan for a purchase with the new HVCC appraisal. If you already own a home and are looking to buy, good luck qualifying until your current home is sold, if it will ever sell for your asking price. Why would anyone want to buy your used home when they can buy a new one from a builder that is deeply discounted? Or they could just go to the bank and get one down the street from where you live for about 50% off. Do you really think rates are having an impact on home sales??? I don't think so. Interest rates are more sensitive to refinances, not purchases!!!!!!