Reply to What is truly going on with the DC area real estate market, please explain?

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[quote=Anonymous]It’s clear few people here have a true understanding of what low interest rates do. Low interest rates help existing asset owners. Period. They hurt new asset purchasers. This is true in bonds, stocks, and housing. In housing, low interest rates help sellers. The additional “affordability” granted to buyers through lower interest rates is offset by higher housing prices (higher principal payments). Existing asset owners can now sell for more or refinance to capture that value that new home buyers cannot.

These Higher housing prices are also not a 1-1 reflection of lower interest rates. They’re much higher than lower interest rates would alone lead to. Peoples salaries have remained stagnant. They’ve made money in the stock market and can use that to buy a house. But the stock markets not going to increase 50% per year each year. Interest rates going back up will also keep a lid on housing prices. Until salaries go up significantly, housing prices can’t continue to go up (unless stocks keep going up or interest rates turn negative)[/quote]

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