In technical terms, redstar's saying that a house is (typically) a 30-year 100%-coupon bond. Interestingly, the interest-rate sensitivity of the price of a bond is called its duration and a 30-year bond has... well... a long duration and therefore a large interest rate sensitivity. For his chosen example of a 30-year mortgage at 6% the duration is something like 21 years.

So, if your interest rate goes up by 0.1% per year, you multiply that by 21 years and you get 2.1% as an estimate of the drop in the value of the house. If you have an ARM not only the value of your house goes down, but your interest payments also go up. Not nice. But you only care about small movements like this if you're speculating in real state. IMHO a first home is not an investment, it's a home, but a mortgage does have this kind of risk which I don't think is quantified in just this way by mortgage advisorssalesmen. It might be obvious that the term of the mortgage is roughly equal to the interest rate sensitivity of the resale value, but ordinary mortgagees are not generally aware or made aware of this fact. [Fortunately for mortgagees, duration decreases as interest rates rise, so by the time you've moved from 6% to 12% you're no longer talking about 21 years' duration but something like 9 years - again, duration is only directly applicable to small movements]

It is interesting that for a 30-year mortgage going from 6% to 12% is a 40% drop in price to 3 significant figures. Anyway, regardless of how accurate it is, redstar uses the 40% haircut to great effect.

It'd be nice if the battle were only against the right wingers, not half of the left on top of that — François in Paris