I was thinking on my way to work the other day about interest rates because I'm thinking about buying a house.  And it occured to me that slipping currency value isn't that big of a deal.

Interest rates were at an all-time low (from the last 20 years) in the last few years in order to offset the recession that the Clinton presidency left us with.

By lowering interest rates so much, they made money more accessible to more people - essentially, they increased the money supply.  They didn't actually create more money (they may have, but that's not the operative factor that I'm focused on).  They simply made money more accessible to people; more people bought houses and borrowed money from banks.  People who already owned homes bought up or refinanced.  Investors went nuts.

An obvious side effect of this was the huge increase in property value in places like California and Arizona.  International trade rates were affected as well, although not nearly as much as in real property.

If this is correct, when interest rates go back up, following some lag time, housing prices will fall (not necessarily as much as they went up), and the value of the currency will increase relative to other places in the country.

Yeah.

Problem with all of that, though...it seems like alot of people (around here at least) take out BIG loans to buy WAY overpriced houses, and other loans for cars/applicances/etc.  When the housing starts to slow our entire economy will feel that (our being our city).  People will make less money, less jobs will be avalible, less stuff will be sold.  People will default on loans & they'll lose their things :(

Yeah, that is the big problem right there... You use your house as security for a loan. Property prices go down. The value of your house no longer covers the loan. You are forced to sell, and you still have a debt to the bank.

[quote author=Adron link=topic=15223.msg154801#msg154801 date=1151045491]
Yeah, that is the big problem right there... You use your house as security for a loan. Property prices go down. The value of your house no longer covers the loan. You are forced to sell, and you still have a debt to the bank.
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I can't speak to California, where things are much more extreme, but last year the bank wouldn't let you buy unless you could put a substantial downpayment.  Interestingly, people were buying houses for more than they would appraise for; this year, where it's fairly normal, the housing inventory is 36,000 at the moment.  Last year, it was 8,000.