What will real estate prices do when...?

[Murse]

Curious what real estate prices typically do when interest rates go up, do they go down or slow their appreciation? If they keep more homebuyers out won't that make rents go up?

Basically I am wanting to buy the next time real estate in my local market takes a dip, which I would think would be whenever interest rates go up? But when interest rates go up so will forclosure and monthly payments, when monthly payments go up wouldn't that put downward pressure on appreciation/price? Does it all equal out in the end? Or is it all market timing and you should just look for the best deal available at the time?

[StreetCat]

Curious what real estate prices typically do when interest rates go up, do they go down or slow their appreciation?

The relationship between RE prices and interest rates is neither very simple nor very strong.  Yes, if everything else is equal and interest rate goes up, then RE prices will go down.  But everything else is rarely equal.  Many times when interest rates go up, it's because the economy is doing well.   In those cases the RE prices may keep going up.

If they keep more homebuyers out won't that make rents go up?

Yes, if nothing else changes.  If builders decide to build lots of rental properties, then the rents may not go up as much.

Basically I am wanting to buy the next time real estate in my local market takes a dip, which I would think would be whenever interest rates go up?

It might, but not necessarily.

But when interest rates go up so will forclosure and monthly payments, when monthly payments go up wouldn't that put downward pressure on appreciation/price?

Again, it might, but not necessarily.  If the economy is strong enough, it will support higher RE prices.

Does it all equal out in the end? Or is it all market timing and you should just look for the best deal available at the time?

I'm not sure what "equalling out in the end" means :-)  Are you suggesting that RE value will be always the same through different phases of the economy?  If so, that's simply not the case.  As with stocks, RE can be richly/poorly valued at different times.  Home prices go above/below inflation all the time.  About market timing, this is only my opinion and it's not a fact.  Others on the forum may disagree with me.  I do believe that generally it is a bad decision to buy when things are expensive.  As with everything else, you will have a margin of safety and a better chance of appreciation of your property if you buy it at a lower price than if you buy it at a higher price.  If you are trying to time the market, I think there are better metrics to track than interest rate (such as foreclosure rate, unemployment rate, etc.)

As if that weren't complex enough, many times local RE markets will defy the national trend.  For example, in the 2008 crash, Dallas home prices dipped only a little but Los Angeles home prices dipped considerably.

In any case, I would say better inform yourself before you make a big purchase.

If you want a quick read on this subject, try Robert Campbell's book: https://www.amazon.com/Timing-Estate-Market-Robert-Campbell/dp/9724418081 - I think this book is a glorified brochure and the author repeats the same info multiple times to fill pages, but it's a quick read.
He also writes a newsletter for $135/year, which may be worth paying for if, like me, you are a beginner in this field: http://www.realestatetiming.com/market-timing-letter.html

If there are REIA meetings in your city, try to attend a couple of meetings.  They usually charge 20-30$ which may be worth paying.  You will get a lot of information specific to your local market.

Some links:
http://us.spindices.com/documents/research/the-impact-of-rising-interest-rates-on-reits.pdf?force_download=true - keep in mind that REIT prices may not always go up/down with home prices.
http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/
http://www.bankrate.com/finance/mortgages/rising-rates-lower-house-prices.aspx

[fishnfool]

I wouldn't wait for long if you're serious about getting into the real estate market. I don't believe the bottoms going to fall out like it did in 08. Prices will level off in most locals but your not going to save a lot of money waiting it out. Interest rates are bound to go up and that will edge out some buyers but it isn't going to drop real estate values like before. Best time to invest is now imo.

[NoNonsenseLandlord]

If interest rates go up, housing prices must go down.  But home prices are not a function of interest rates as much as wages.

If the majority of people are only making low income wages, prices will fall.  The upcoming demographics suggest that wages will continue to fall, even if average wages go up.  Bringing up the average minimum wage by .25 increases the average wage as reported on wall Street, but it doesn't help housing prices.

[Future Lazy]

Just like any other investment, it's not usually valuable to do guess work and try to time the market. The time to invest is almost always "now".

It's much better to focus your efforts on picking a sustainable property - one in good shape in a good area where people want to live - than it is to try timing the market. If you think rents could go down, you should definitely include that in your understanding of what a financially sustainable property is while you are shopping around for one.

[arebelspy]

Curious what real estate prices typically do when interest rates go up, do they go down or slow their appreciation?

The relationship between RE prices and interest rates is neither very simple nor very strong.  Yes, if everything else is equal and interest rate goes up, then RE prices will go down.  But everything else is rarely equal.  Many times when interest rates go up, it's because the economy is doing well.   In those cases the RE prices may keep going up.

Nailed it.

If interest rates go up, housing prices must go down.  But home prices are not a function of interest rates as much as wages.

This answer is the "classic" one, and the one that makes sense spherically in a vacuum, but if you look at the charts of historical housing prices and historical interest rates, overlaid on top of each other, it's not true that there's a reverse correlation.  In other words, prices don't necessarily fall when rates go up, or vice-versa.

It seems like it should be the case, because higher rates==people paying more towards interest, and thus less towards principal, thus you need to offer a lower price to sell, but it doesn't often happen that way in the real world, as StreetCat said.