Steady Increase in Interest Rates

The property market is completely out of control, housing prices are making enormous gains month over month, year over year. There is a general panic in the populous right now that, "if I don't buy a house I am going to miss out". (Does remind you of the stock market with all of the dot com IPOs?) With the cost of houses increasing rapidly, people are using low interest rate mortgages (in the form of ARMs) to afford bigger and nicer houses. So what's the big deal? A mortgage should never be above 40% of your disposable monthly income, if you were to purchase a house and get an ARM (adjustable rate mortgage) today and overextend your income (let's just say you are at 40%) you are set up for disaster. Why? Because you are betting against the Fed, you are dependant on the Fed lowering, or at the very least keeping interest rates steady. But guess what, the Fed is committed to increasing interest rates to control inflation. What does that mean? Higher mortgage payments. Ready for the double whammy? With local and state governments cash strapped to fill the deficit in the budgets taxes will be levied. This means assessments on top of already increasing mortgage payments. So what happens when people can't afford their mortgages anymore? They have to sell their homes. So we are going to be in a climate of increasing rates, increasing taxes, and a glut of homes on the market. These factors combined will create downward pressure on home prices. Things will get interesting. Of course, I could be completely wrong....