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It's not just politicians and "the new generation" who don't want double-digit mortgage rates. Surely it is also regarded as a present impossibility by the bank

It's not just politicians and "the new generation" who don't want double-digit mortgage rates. Surely it is also regarded as a present impossibility by the banks. I mean, barring massive inflation, a double-digit mortgage rate would put so many home owners in default that it would make the global financial crisis of 2008 look like a birthday party for small children. The "something will happen" part I agree with. I think we will need to come to terms with the fact that our world has crossed the inflection point on the S-curve that all growing populations are confined to. And that will mean dismantling current financial mechanisms such as "interest rates". I'm dead serious - I don't know how the financial system will look like in 2100, but I'm convinced that "interest rates" as we know and use them today will be something taught only in "history of economics" class.

lotsofpulp 6y ago
Most US mortgages are fixed rate mortgages, so increasing mortgage rates would not affect the monthly payments people have to make for their homes, therefore it would not cause home owners to default (in the US). In May 2019, adjustable rate mortgage applications were only 6.2%: https://www.mba.org/2019-press-releases/may/mortgage-applications-decrease-in-latest-mba-weekly-survey https://www.mba.org/2019-press-releases/may/mortgage-applica...
- bogomipz 6y ago
  Sure, there has been very little reason to take out an adjustable rate mortgage when you can lock in a historically low rate which has been the case the last couple of years. However ARMs were one of the things that caused the market to collapse in 2008 and as rates tick back up over time it's likely that they could become an attractive option again. The other thing is that at some point people need to sell and what is barely affordable to so many now at 3% will surely become unobtainable for many more when rates are 7 or 8%. At some point doesn't it turn into a mobility crisis as there's less and less people who can afford to buy.
bko 6y ago
> I mean, barring massive inflation, a double-digit mortgage rate would put so many home owners in default that it would make the global financial crisis of 2008 look like a birthday party for small children. Not necessarily. The percentage of new mortgages that are ARMs (adjustable rate) is very low. > ARMs accounted for just 2.6 percent of mortgage applications in recent weeks and fell to 2.2 percent this week, according to the Mortgage Bankers Association. Not sure about existing supply but I think it would be single digits as well. And most ARMs are longer (e.g. 7-1 or 10-1) meaning the floating rate portion doesn't kick in until 7 or 10 years in (respectively). Mortgage rates have been low so long I imagine most people with older arms refinanced long ago or built up enough equity where they'll be able to refinance at higher rates if they had to. So existing mortgage holders wouldn't be hit with higher costs. However the valuation of their home would likely tank making a lot of mortgages effectively underwater (you owe more than the asset is worth). You will see a lot of people do strategic defaults or try to re-negotiate their balance. If I owe 500k on a home worth 450k, I might be fine with it, but if the home was only worth $250k, I would definitely consider a "strategic default", walk away from my mortgage, take a hit on my credit and buy essentially the same home at half the price. But lenders aren't stupid more realistically they'd negotiate down my balance and there would be federal programs to encourage refinancing. https://www.bankrate.com/mortgages/arms-disappear-from-mortgage-market/ https://www.bankrate.com/mortgages/arms-disappear-from-mortg...
- harambae 6y ago
  >You will see a lot of people do strategic defaults Worth noting that not everyplace is California (although half of HN may live in CA, I donno). There are 12 non-recourse states in the US: Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington. Outside of those states, you couldn't necessarily just walk away.
jchrisa 6y ago
If we are asking the big questions, it's worth considering what the macro-economic impact would be if taxation was ended, and the government funded itself solely through printing money. The discourse is all about lowering the tax burden on the rich so they can innovate. But my intuition is without taxes, the rich would be hit harder with inflation than the middle class. So even a strong progressive taxation system can be seen as a giveaway to the rich.
- reedjosh 6y ago
  The rich tend to keep their money in assets. Inflation only makes the rich richer.

lotsofpulp 6y ago

Most US mortgages are fixed rate mortgages, so increasing mortgage rates would not affect the monthly payments people have to make for their homes, therefore it would not cause home owners to default (in the US). In May 2019, adjustable rate mortgage applications were only 6.2%: https://www.mba.org/2019-press-releases/may/mortgage-applications-decrease-in-latest-mba-weekly-survey https://www.mba.org/2019-press-releases/may/mortgage-applica...

bogomipz 6y ago
Sure, there has been very little reason to take out an adjustable rate mortgage when you can lock in a historically low rate which has been the case the last couple of years. However ARMs were one of the things that caused the market to collapse in 2008 and as rates tick back up over time it's likely that they could become an attractive option again. The other thing is that at some point people need to sell and what is barely affordable to so many now at 3% will surely become unobtainable for many more when rates are 7 or 8%. At some point doesn't it turn into a mobility crisis as there's less and less people who can afford to buy.

bko 6y ago

> I mean, barring massive inflation, a double-digit mortgage rate would put so many home owners in default that it would make the global financial crisis of 2008 look like a birthday party for small children. Not necessarily. The percentage of new mortgages that are ARMs (adjustable rate) is very low. > ARMs accounted for just 2.6 percent of mortgage applications in recent weeks and fell to 2.2 percent this week, according to the Mortgage Bankers Association. Not sure about existing supply but I think it would be single digits as well. And most ARMs are longer (e.g. 7-1 or 10-1) meaning the floating rate portion doesn't kick in until 7 or 10 years in (respectively). Mortgage rates have been low so long I imagine most people with older arms refinanced long ago or built up enough equity where they'll be able to refinance at higher rates if they had to. So existing mortgage holders wouldn't be hit with higher costs. However the valuation of their home would likely tank making a lot of mortgages effectively underwater (you owe more than the asset is worth). You will see a lot of people do strategic defaults or try to re-negotiate their balance. If I owe 500k on a home worth 450k, I might be fine with it, but if the home was only worth $250k, I would definitely consider a "strategic default", walk away from my mortgage, take a hit on my credit and buy essentially the same home at half the price. But lenders aren't stupid more realistically they'd negotiate down my balance and there would be federal programs to encourage refinancing. https://www.bankrate.com/mortgages/arms-disappear-from-mortgage-market/ https://www.bankrate.com/mortgages/arms-disappear-from-mortg...

harambae 6y ago
>You will see a lot of people do strategic defaults Worth noting that not everyplace is California (although half of HN may live in CA, I donno). There are 12 non-recourse states in the US: Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington. Outside of those states, you couldn't necessarily just walk away.

jchrisa 6y ago

If we are asking the big questions, it's worth considering what the macro-economic impact would be if taxation was ended, and the government funded itself solely through printing money. The discourse is all about lowering the tax burden on the rich so they can innovate. But my intuition is without taxes, the rich would be hit harder with inflation than the middle class. So even a strong progressive taxation system can be seen as a giveaway to the rich.

reedjosh 6y ago
The rich tend to keep their money in assets. Inflation only makes the rich richer.