Low interest rates make it harder to pay cash. So, the mortgage industry has been in this weird loop where you have to use it, even if you could have afforded a house without it.

In two extremes: Imagine a market with 20% interest rates. You could just save money instead of holding the loan for 5 years, and then pay cash. Fewer people would have mortgages.

Imagine 0.1% fixed, interest-only loans. Financing a house with that would cost about 1/200th as much as in the 20% environment, so prices would increase by something like 200x.

We are coming out of ~2% rates. That means houses should cost a bit under 10x more than they would at 20%. If you put 20% down, you could probably have purchased outright in the other environment.

(This ignores the possibility of new construction, since I live in California, and that’s more realistic than saying people will be allowed to build housing to take advantage of low mortgage rate arbitrage).

What does inflation look like in your hypothetical with 20% interest? Do house prices not inflate?

Higher interest rates (for subsidized loans) should lead to lower inflation, since it is analogous to the government printing less money.

Instead of a 5 year loan you just save up to buy a house? I suppose this is just a hypothetical?

Because even when interest rates were high, people were not generally buying their homes in cash.

That's like saying instead of renting for years you could just save that rent money and buy a house after a few years.

And with low rates, no one was buying a house with just a 5 year mortgage either.

The only reason you are seeing a lot of cash buyers right now is that you have lots of people who have sold their homes at inflated prices after buying years ago at near nothing and now that prices are falling, they have the cash to buy. But that won't last and it will soon be back to only the small group of people with very big incomes or family money and investment firms that are buying in cash.

Nor can they save for the downpayments, which are not far from where the prices used to be before the explosion that I attribute to cheap loans.

If no one can afford even a down payment it's because supply is too low. It's not like there are tons of empty houses that mortgages are preventing buyers from acquiring.

Also first time home buyers qualify for very low down payments, like 5%, fwiw.

Supply isn't too low, supply has being diverted to investors who often don't reside in the home, or who short term rent it. If there was a big tax on non-owner-occupied single family homes that made it unprofitable to buy and hold or vacation rent, housing prices for single family homes would drop hard.

> housing prices for single family homes would drop hard.

No, they wouldn't. as evidenced anywhere this is tried

I'm going to need you to back that up with a fair amount of data, because this seems like an easy place for someone with an agenda to strawman.

First time homebuyers can get a FHA mortgage for 3% down. I think most people thinking about buying a house could put together $7,500 on a quarter million dollar home. And if you're looking to spend more than a quarter million on your first home, well then maybe that's the issue. Starter homes exist in all but a handful of cities.