this post was submitted on 07 Jul 2023
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High inflation is far worse for most workers than higher interest rates.
Say that to the people who will eventual default on their mortgages and lose their homes. Economics is the only social science that behaves as if it were a natural science where everything is self-evident. That's not to say that low interest rate are inherently good but that the mechanism itself that is used to combat any form of inflation is a very limited tool.
Houses got stupid expensive because interest rates were too low. People bought houses uses cheap debt without considering the possibility that interest rates would go up, and bought houses they couldn't afford. Interest rates never should have been so low in the first place.
That's a pretty unfair characterization of the situation.
Rates had been low for quite awhile. Will the rate eventually go up? Of course! But people can only guess when.
We're required to consider the possibility of rates going up (the stress test), but I'd thought that for some borrowers we're already past what they were stress tested against.
For many, this period of low rates felt like their last chance to get their foot in the door. Whether rates went up or not, it was looking like the barrier to entry (either price or mortgage eligibility) were going up one way or another. You either wait and risk never being able to buy a home (or at least not in the location you want), or buy and risk rates going up. Might some people lose that gamble? Yeah. Pretty easy to understand why they took it though
Some people definitely got screwed. Others though, who got in at like 0.5% on a variable -rate mortgage and were shocked when it went up... well they could have expected that sometime within the term of the mortgage that was going to be an issue...
Yes and that is part of the problem we are paying for now. We should have never had such low interest rates.