In my view, CalculatedRisk is the blog’s leading authority on the housing market. Having read the latest from John Tamny, James Grant’s Forbes article is something we might all read as well. But Tamny disagrees with Mr. Grant’s assertion that higher interest rates tend to reduce the value of houses:
Though the prime-lending rate rose from the single digits in 1976 all the way to 19 percent in 1979, real estate took off. Gilder noted that by 1979, “the value of individually owned dwellings had reached $1.3 trillion dollars, twice the worth of individually owned corporate stock.” He added that half of the newly minted multimillionaires in 1978 achieved their fortunes in real estate. Grant cites three “brutal property bear markets: 1974-75, 1980 and 1990-92,” but in each case the prime rate was falling during the years mentioned.
I might ask Mr. Tamny to distinguish between changes in nominal v. real housing prices as well as changes in nominal interest rates v. real interest rates, but I suspect CalculatedRisk has already covered these concepts thoroughly.
Two more things: Tamny suggests that the prime interest rate was falling in 1980. One might ask why did he mention the prime interest rate and not mortgage interest rates, which actually rose during 1980. And Tamny bothers to check, it turns out that the prime rate may have been high and volatile, but was not falling over the year. Oh well, I guess understanding the data means one is not qualified to write for the NRO.