Which do you think is better: Rising interest rates or rising prices?

Here is a perspective worth pondering.

Imagine two scenarios:

# 1. Low interest rates with home prices rising 10% per year or

# 2. Higher interest rates with home prices not rising. Let's use as our sample property a home selling for $1 million to keep things simple:

Scenario 1 - If home prices rise by 10%, a 3% interest rate 30-year fixed rate mortgage monthly cost rises by about $337 more per month.

Scenario 2 - If the same home price stays the same, but mortgage interest rates rise from 3% to 4%, the additional monthly cost is $446/month, about $109 more than the price increase scenario with lower rates. BUT scenario #1 requires an additional $20k in cash for the down payment. That $20k alone will pay about for 15 YEARS of the difference between the rising home price vs. rising interest rate scenario if it earns zero interest.

The painful consequence of super-low interest rates that impacts monthly costs most is the fact that it can fuel (often very large) home price escalations. 10% is conservative for many parts of Marin in 2021! Now imagine a market where home prices DON'T rise dramatically - if at all - with higher mortgage interest rates. It could be a wash.