The housing market is obviously depressed and has been for a few years.  It is not depressing for someone looking to buy a house, but it is obviously tough for those who own a house, particularly for those who bought at the height of the boom in 2005/2006.  But where will housing prices in the U.S. go from here?

First, housing prices vary considerably depending on the region.  Prices are higher in some areas and prices will go up or down faster in some areas.  With that said, this analysis is just based on the overall trend.

There are some conflicting arguments in regards to housing, especially for the medium to longer term.  In the short term, housing prices seem like they will continue to go down.  There are a lot of short sales and foreclosures and there are also people waiting to sell until prices move back up.  This is all bearish for housing prices.

Interest rates, while they have moved up a little in the last few months, are still at near historical lows.  You can still get a 30 year fixed rate mortgage for around 5 percent if you have decent credit and a decent down payment.  When you compare this to the double digit rates of the 1970’s, they are very low.  But housing prices have stayed down in spite of these low rates.  If interest rates go up, this could depress housing prices even more.

If interest rates (and mortgage rates) rise, it will make payments more expensive.  This will probably lower housing prices.  But if you own a piece of property that you rent to someone else, the rent amount may not fall.

But you could also look at rising rates another way.  It may depend on why rates are rising.  If it is because the market views a greater risk of default, then housing prices probably will go down.  But the more likely scenario is that interest rates go up because the market fears inflation.  Interest rates go up with fears of inflation to compensate the lender, since he will be paid back in money that is worth less than before.  But if inflation is raging, then this could have a counter-effect and cause housing prices to go up or at least go down slower.  Real estate is a hard asset and that is what you want to own in a high inflationary environment.

My overall take on housing is as follows:

If you are planning to live in the same location for a while, and if you currently don’t own a house or are willing to rent out your current property, and if you have a decent down payment and good credit, and if you can buy a house where your payments will be comfortable for you (that’s a lot of “ifs”), then you should consider shopping for a house.  You can find some good deals out there if you are patient.  If you can lock in a low fixed interest rate for 30 years and you keep the house for that long, your last payment will probably be the cost of a nice lunch.