patrick.net

Absolutely. Just think about paying fat property taxes for 40 years.

Lower housing prices are most definitely better than lower mortgage rates. As bubblesitter already alluded to, the tax savings is much higher. But also, the overall risk and debt burden is lower for the individual and family.

Also consider that a lower interest rate and high price means it is much harder to pay down the mortgage more quickly with an increasing salary. A high interest rate coupled with a lower price means that a family wishing to pay down a mortgage will have less principle to contend with. Drops in prices are also easier to absorb. A 10% price drop in a house that cost $250,000 is a hell of a lot easier to swallow than a 10% price drop in a house that cost $500,000.

+ low rates = higher prices and once prices head south or rates go up, refi chances are zip. Been there before, look in the rearview mirror.

bubblesitter says

Absolutely. Just think about paying fat property taxes for 40 years.

Like they wouldn't just change the millage rate.

Call it Crazy says

Diomedes777 says

Also consider that a lower interest rate and high price means it is much harder to pay down the mortgage more quickly with an increasing salary.

Huh????

A lower interest rate means less is paid to interest and more is paid to lower the loan balance. Obviously, the more you borrow, the more you have to pay back.

You mis-understood my point. Because a loan amount is fixed, the smaller the amount, the easier it is to pay off as your salary increases.
If for example you buy a home that cost $250,000 at a time when your salary was $50,000, it is far easier to pay down the smaller loan amount as your salary increases. As opposed to buying a $500,000 home at the time your salary was $50,000. If, after ten years, your salary has increased to $80,000, and you have more disposable income available, you have a smaller remaining principle to contend with.

Call it Crazy says

A 10% price drop in a house that cost $250,000 is a hell of a lot easier to swallow than a 10% price drop in a house that cost $500,000.

What's your point?

I just made it in my previous comment.

Diomedes777 says

You mis-understood my point. Because a loan amount is fixed, the smaller the amount, the easier it is to pay off as your salary increases.

Makes sense to me.

debyne says

Diomedes777 says

You mis-understood my point. Because a loan amount is fixed, the smaller the amount, the easier it is to pay off as your salary increases.

Makes sense to me.

I also forgot to mention the lower initial investment required. A 20% down payment on a $250,000 dollar home is obviously smaller than a 20% down payment on a $500,000 dollar home. In many cases, because of the large difference, people have to either scrounge up a larger sunk cost or take a larger loan an incur PMI.

One could also bring up the lost opportunity cost of the money being invested elsewhere. If, for example, someone has the $100,000 for the down payment for the $500,000 home, had the home been only $250,000, they could choose to either place a larger down payment, thereby reducing the size of the loan, or conversely, they could invest the difference in another asset, thereby diversifying.