That and interest rates. As rates fall property values will rise in proportion. A home’s value is what people that want to live there are willing to pay and can afford each month. So it either goes to the bank, the owner, or the tax collector.
saying low interest rates case high property values is putting the cart before the horse, mortgages cause high home prices. You could have high interest rates, but if they gave high interest loans out like candy to anyone who wanted one, home prices would still rise.
I think it's both. Ultimitly, a home will rise in value due to a few things such as improvements, inflation, or a certain area becoming a hot/cold real estate location. However, the ultimate selling price for a home is going to be greatly affected by interest rates. We've seen it in the last year where rates have gone 1% since a year ago, you've seen houses rise in value quite a bit and in proportion to that. 1% difference on a 30 year term is pretty significant and will be noticeable on the monthly payment.
Even though some people can or do pay cash for a home, they are not a significant population. Very often people that can pay cash will make a cash bid, prove they have it and still get a mortgage because money is cheap and the opportunity cost of trading that money for a house is generally unfavorable. A home is generally a market lagging investment when considering maintenance and taxes. Throw in interest and it's a lousy investment but you can live in it so it's rational depending on your lifestyle.
What people can afford in an area they want to live is what prices homes - taxes, mortgage rates, and price combine to generate a monthly payment that people are willing to pay. That's how the market works. In some areas the price can outpace the other 2 if wages are rising, like we've seen in SV for awhile now. But that's the exception and not the rule.
