If I could pick a time to buy a house, it would be at a time when interest rates are at an all time high. Three reasons:
1. Since people buy a monthly payment, rather than price, it means that it would deflate house prices. IOW, the principle would have to be a smaller part of my monthly payment and therefore prices would be lower.
2. Since most of my payment is interest, I would get a bigger interest deduction on my income taxes
3. When interest rates DO come down, my home will be worth more so I could, if necessary, sell at a profit.
4. When interest rates do come down, I can refinance and save possibly hundreds, or more, per month.
OTOH, if I buy when interest rates are at historic lows, there are many reasons not to buy, all relating, but in a negative way, to the same numbered items above:
1. Since people buy a monthly payment, rather than price, it means that it would increase house prices. IOW, the principle would have to be a larger part of my monthly payment and therefore prices would be higher.
2. Since most of my payment is principle, I would get a lower interest deduction on my taxes. In fact, it may be so low that I fall into the standard deduction.
3. When interest rates DO go up, my home will be worth less, so I run the risk of being underwater, and the house becomes a ball and chain, forcing me to remain there even if the local economy tanks.
4. When interest rates do go up, I can refinance! Hahaha! Actually, buying when interest rates are at historic lows means you can only expect your monthly payment to remain the same or go up as real estate taxes kick in. There will be no “refinance to save hundreds per month” in your future.
Bottom line: This is a very, VERY bad time to buy a house.
A few thoughts: high interest rates are usually coupled with high inflation, which means that house prices would be expected to go up, not down, in period of high interest rates. Also, when interest rates are going up, people buy because they perceive that if they wait, they are going to be priced out of their house. Looking at 1977-1981, when interest rates rose from 6.25% to 21.50%, the average home price went up over 50% over that same period.
The reverse is also true: when interest rates are falling, there is lower inflation and people wait to buy because they feel that they can get a better deal by waiting. You would expect home prices to fall—as they have done now.
So if you bought your house at the highest interest rates and then tried to sell in a period of falling rates, you may have some difficulty because people are waiting for a better deal.
With respect to your final point 4, if interest rates are on the rise, that means that inflation is likely on the rise, which would mean a growth in salary and wages, which means a lower percentage of my income is devoted to housing (because I bought at a low, fixed rate). Inflation is good for borrowers, bad for lenders. Not the other way around.