Mortgage rates did affect house prices for 36 years.

correlation of mortgage rates with real housing prices

"let me go back to the original purpose of the article. I asked the question, "What could happen to real estate in the event of higher inflation?" If inflation shot up from 1% to 7%, what would happen to the real value of your home. My thesis was: you're screwed. You will lose what little equity you have and real housing prices could drop by as high as 50%."

"I place the start of the bubble in 2003. We had had some substantial housing price increases before then, but the interest rate was falling, so I wasn't so worried.After 2003, rates stopped falling. Then, as if to compensate, there were a whole host of "affordability products" including subprime arms"

A person only has a limited income. When they buy a house with borrowed money what they can buy with that income changes dramatically with interest rates.

If you only have $500 a month to pay your mortgage only payment here is what happens.
A 30 year $100,000 mortgage costs $491.94 a month at 4.25%.
A 30 year  $82,000 mortgage costs $491.63 a month at 6.00%
A 30 year  $80,000 mortgage costs $492.57 a month at 6.25%
A 30 year  $69,000 mortgage costs $494.32 a month at 7.75%
A 30 year  $67,000 mortgage costs $491.62 a month at 8.00%
A 30 year  $56,000 mortgage costs $491.44 a month at 10.0%


A $1,000 a month payment can buy a
$200,000 mortgage at 4.25% paying $983.88 monthly or
$110,000 mortgage at 10%    paying $965.33 monthly or
$_47,000 mortgage at 25%    paying $979.75 monthly

This shows conclusinvely that if incomes do not rise considerably and interest rates do rise house prices will be forced down to meet what borrowers can afford to spend.

Would you rather buy a house at a higher price and a lower interest rate or a higher interest rate and a lower price? If you had to sell into a higher interest rate environment the low mortgage rates you get now could be a problem later on.