In a real world not subject to artificial manipulation and government subsidy, if interest rates rise, the value of the homes would simply adjust downward to a price level where the buyer could both qualify for and be comfortable with the higher payment level.
Likewise, when interest rates fall values of all homes would sympathetically rise as buyers qualified for higher payments.
When interest rates rise, the value of a bond or stock historically adjusts downward.
If a bond drops say 20 percent in value to adjust to a rising interest rate, it would be logical for all homes to have a relative similar price gyration (with variations according to location factors) when mortgage rates track bond rates..
If someone buys a $300,000 mortgage with a 4 percent mortgage today and next year someone tries to buy another $300,000 home with a then current mortgage rate of 5 percent, in the real world both $300,000 homes would be repriced at lower values. Because the pool of home buyers would hot have had a 25 percent salary increase in the aggregate to handle the now higher monthly payment and conform to ratios.
Even this year's sold home should realistically drop in value because potential buyers at a 5 percent rate qualify for less home under loan ratio formulae.
Because the Federal Reserve bank has unleashed so much monetary inflation since 1913 it was always assumed that by simply flooding consumers with more dollars they could somewhat keep up with inflation and provide a scenario of ever rising home values to counteract the interest rate fluctuations without having to reprice existing mortgaged homes to current mortgage rates..
Now, it is realized that adjustable rate mortgages can't realistically climb to 12 percent, that globalism has crushed automatic wage inflation in a U. S. now globally linked to a worldwide work force, and that home values can indeed drop.
If the mortgage industry had treated the entire existing housing stock like a pool of bonds all along it would have realized that raising interest rates deflates values of all homes - in a real world that is not being artificially manipulated all the time by a privately owned central bank.
The mortgage industry should have realized that gyrating interest rates should influence home values as much as they do buyer qualification levels..
So a person who buys a $300,000 home this month at 4 percent, should realistically expect to have his and her home worth much less if rates rise to 6 percent two years out. There will not enough wage inflation to expect a future buyer of today's home to be able to afford a $300,000 home at 6 percent.
One solution is to abolish the Federal Reserve and implement a policy that.calls for stable prices and stable predictable interest rates if modern society continues to reject the Middle Ages practice of selling homes at 0 percent interest, and with buyers retaining the equity they have bought down to date if they start to miss payments on an extended time purchase contract.
(In those days, a third party stepped in and took over, completing the payments owed to the seller and then paying the original buyer equity he or she had accumulated to the date of default.)
No, the modern mind has to accommodate traders and volatility.
And creation of money out of thin air to support those who have an aversion to constructive work.