Impact of interest rates on prices?

[Collins Bonnema]

Primary home interest rates are almost 5% for a 30 yr fixed and almost 5.5% for 30 yr fixed on investment. What do you guys think interest rates will do to SFH and Multi-family prices?

[Mike Dymski]

Truth - no one knows what is going to happen with prices and rates.  If they did, there are a lot easier ways to make a profit on that knowledge than buying or selling real estate.

Financial obligations (bank payments + rent) as a percentage of disposable income is at a 40-year low.

Although commodity price inflation has been severe, prices are just getting back to 2014 levels.

The average household wealth of the bottom 50% of households is at a historic high...there is no comparable period whatsoever.

If you back out real estate gains, net worth is over 100% higher than pre-pandemic levels for the bottom 50% of households.

Bank deposit balances of the the bottom 50% are $10,000+ and $3,000 above pre-pandemic levels, and kept increasing in 4Q21 after 3 quarters of increasing inflation and lower fiscal support payments.

Government unemployment insurance benefit payments have trended to near zero.

Nominal wage growth for the lowest income quartile is growing at the same pace as inflation.

2020 had large gains in real wage growth; so, even though real wage growth is severely negative for the past year, the 2-year trend is break even.

If real wage growth is -1%, it would take ~6 years to burn off the excess savings of the average bottom 50% of households.  Even at -5%, it would take over a year.

Job openings are at all time highs; so, wage growth should continue, particularly for the bottom 50% of households.

Spending estimates by all income levels, but most significantly lower incomes, are at record levels and inflecting higher still.

Average tax refunds are higher (due to child tax credit).