TaxingWhat you fail to mention is that back in the 60's and 70's...

Taxing

What you fail to mention is that back in the 60's and 70's the the average house could have been bought on less 10x the average wage....

What's the relevance of this...? Household's were committing a SMALLER PERCENTAGE of their net income after tax to paying of the mortgage...

Granted, we've had high interest rate periods, and low interest rate periods (ie we've had cycles), however, in previous cycles, people had committed less of their net income after tax to servicing and paying of the mortgage.

What's happened since the 60's and 70's is that people are committing a LARGER percentage of their net income after tax to servicing the mortgage...consequently even in rising interest rate periods in previous decades, prices were appreciating because the increased percentage people were committing to servicing the mortgage was greater than the additional cost of interest rates.

Apportioning a greater and greater portion of ones income to servicing the mortgage can't continue forever... there has to be a natural limit...at 35, 40, 45% ??

Where does the growth in borrowing capacity come once people have exhausted their committment of mortgage payments as a proportion of income too far...?

You see you've got to look DEEPER than just repeating the previous rate and inflation cycles... you've got to examine why such a logical theory such as mine doesn't apply...

...and there's a very straightforward answer as i've outlined above...



In additional to increased committment as a percentage of income, another significant driver over the last 20 years has been the increased capacity of couples to borrow because of the increased participation of women in the workplace... there are two wages in the average family now, whereas in the 60's and 70s there was mostly only one...


So these two factors
1. commiting a greater proportion of ones income to servicing both the interest and principal costs of a mortgage, &
2. the increased prevelance of two income families,...

... has allowed households to increase their borrowing capacity even during rising interest rate periods... thus proving the required fuel for rising property values.

Both of these borrowing capacity drivers have been exhausted, imho...ie their effects are already reflected in the increased debt levels of most households.....


.....so what's the new driver going to be that supports property values during the next rising interest rate cycle....???

I can't think of any, can you ...??


If not, then your argument of comparing past rising inflationary and interest rate cycles to possible future ones is fundamentally flawed.

It has more holes in it that swiss cheese.