There is more to high house prices than constrained supply
Home prices vary inversely with interest rates. Here&#x27;s how that works:<p>1) person tells bank they&#x27;d like a mortgage to buy a house.<p>2) banker asks for info on income, expenses, etc.<p>3) banker estimates persons maximum monthly payment.<p>4) banker figures out max loan amount based on #3<p>5) buyer is encouraged by everyone to spend the full amount from #4<p>Everyone - the seller, their agent, your agent, the bank, and maybe some others - want you to spend every penny you can. Everyone benefits from higher prices except the buyer. Even if you&#x27;re immune to it, there is enough pressure that the market as a whole tends toward the highest prices people can afford.<p>Now lets see how interest rates play in this. At step 4 above, the amount you can borrow for a given monthly payment is mathematically increased by lower interest rates. For a given amount of debt your payment should be lower if rates are lower - that&#x27;s true - but they&#x27;ll make up for it by pushing a larger loan.<p>Ultimately your payment is determined in step 3 and has nothing to do with interest rates or home prices. You will &quot;pay&quot; the same for your house (total payments) regardless of interest rates. The only thing the interest rate determines is who gets the money - the seller or the bank.<p>In a services and consumption based economy this is the primary way interest rates drive things. Sure, businesses will do their part too, but they&#x27;re a smaller part of it.