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> The rise in housing prices has mostly been canceled out (or caused by?) low interest rates. After you adjust for interest rate and inflation, the monthly payment for a house (ie. the price you actually pay) has actually gone down from the 90s.

Only if you ignore the tax side of things, housing interest payments are deductible where principal payments aren’t. That ends up having a huge impact when inflation and interest rates drop. It’s not uncommon for mortgages to be less affordable over time. A bump in interest rates without could really mess things up.

[gruez]

> That ends up having a huge impact when inflation and interest rates drop.

How so? The chart in question is for 30 year fixed rate mortgages. You're going to be making the same payment every month regardless of what direction interest rates move.

[Retric]

The mortgage income tax deduction means paying interest comes at a discount, paying principal doesn’t so the effective nominal payment increases over time. However, when inflation is high after 10 years the mortgage becomes trivial to pay. That dramatically increases housing affordability over a lifetime. Making a stretch purchase becomes reasonable, but if inflation is very low making the same nominal payment becomes less affordable every month.

Worse insurance and property taxes are indexed to value and don’t care about inflation. Further people can’t make the same down payment when property values increase. Identical down payments at different interest rates don’t lower monthly payments equally, and at ultra low interest rates their not even a good investment.