How much do prime rates influence home prices?

[nereo]

I am pondering what will happen (broadly speaking) once mortgage rates rise. 

Suppose the prime lending rate eventually goes back to 6 - 7%... Will that tend to make the median cost of a home go up or down?

Does the mortgage rate have a strong, weak, or non-significant effect on housing prices?

Logic tells me that absent all else rising rates will reduce home prices, since people will be able to afford less, but OTOH higher rates might come with a stronger economy (that's the theory, right) and there will always be wealthy people who can pay cash or afford high interest loans...and low rates in the 2006-2008 corresponded to a huge real estate bubble...

[Bearded Man]

I've read articles that showed housing doesn't always go down when interest rates rise. Apparently they don't normally go down when rates rise. I'm debating whether I should cash out refinance any of mine to get some equity out.

[CashFlowDiaries]

I think it all varies by specific markets but my guess is that if the rates do go up that high, that prices will eventually start dipping lower to compensate. 

[Melody]

My understanding is it impacts "first home buyer" neighbourhoods significantly more than blue chip areas, so this could be somethibg to keep in mind.

[Drifterrider]

...and low rates in the 2006-2008 corresponded to a huge real estate bubble...

Consider this:  In my market prices rose 20% each year from 2000 through the crash.  This was due to 1.  limited supply  2.  increased demand  3.  cheap money.

Unless one pays cash, every buyer is a monthly buyer.  If you have $1,000 per month to spend the more you pay in interest the less you can pay towards principle (the price of the house).  The opposite also applies.  That is what drives the price of the house.

I would say that easy credit (liar loans) contributed more to the sharp increase in cost of houses more than low rates.  People who could not afford houses bought them with such loans as interest only, ARMs that reset much higher.

Those interested in selling houses and loans will tell you to "buy now" before rates go up but even if they go up a small amount (1%), the monthly additional cost for the average home is an additional few dollars.

One of the biggest factors I've seen is availability.  I live in an "insulated" area with little buildable land available (can't get public water and sewer and the ground won't support septic systems).  The median salary in my county is over $75K p/a and more people are still arriving (very good jobs situation).

So, it all depends.