5 ms·

What's not being spoken about in the article is interest rate increases. They're as low as they can go, the only way is up at some point. If rates increase, ser

What's not being spoken about in the article is interest rate increases. They're as low as they can go, the only way is up at some point. If rates increase, servicing current debts maybe impossible forcing people to sell and financing new purchases at current prices is out of reach for new buyers. Given current inflation expectations (and reality) the ECB will probably come under a lot of pressure to start raising rates. The French are already trying to play down inflation to try and avoid the above scenario I'm guessing https://www.bloomberg.com/news/articles/2021-11-18/don-t-panic-about-inflation-france-s-le-maire-tells-europe https://www.bloomberg.com/news/articles/2021-11-18/don-t-pan...

gfodor 5y ago
"The only way is up" is a bad argument for trying to predict interest rates. There are other ways. First, no change. Second, negative. People have been making the "they have to go up eventually!" argument so long now that I'm starting to think that no, they don't have to.
throwawaygh 5y ago
Although true in Europe, the US is less susceptible to this because of our 30 year fixed rate mortgages. In fact, here, it's the opposite: interest rate increases -> decreased housing prices -> decreased tax assessments -> lower total cost of ownership for already-issued loans -> less risk of default for current home owners. In a vacuum.
- xxpor 5y ago
  I think the risk in the US is if house valuations fall too much and you're severely underwater, people will just walk away from mortgages. I believe we saw this in 08. Not as direct a risk in non-fixed mortgage countries, but still an issue.
- jacquesm 5y ago
  Plenty of fixed rate mortgages in Europe. 30 year fixed is about 2% here at the moment.
  - cromka 5y ago
    Really? WherE? I thought it was exclusively US thing, with UK having some fixed mortgages that were otherwise too expensive to justify choosing them.
    - sofixa 5y ago
      France too.
    - jacquesm 5y ago
      Netherlands, Italy, Poland, probably many others.
    - oblio 5y ago
      Luxembourg, probably other places, too.
mdorazio 5y ago
The first part of your statement would only apply if most mortgages were adjustable rate. They are not (at least in the US). ARM loans were under 10% of all loans in 2019 [1]. Everyone who locked in a fixed rate loan is fine until they need a new home. I would expect rising interest rates to stabilize or maybe slightly decrease market prices, not cause a massive decrease. [1] https://www.washingtonpost.com/business/2019/02/14/adjustable-rate-mortgages-are-becoming-more-popular-with-buyers/?outputType=amp https://www.washingtonpost.com/business/2019/02/14/adjustabl...
- throwawaygh 5y ago
  Article is about ECB not Fed. The 30 year fixed rate mortgage is a pretty American thing.
  - ElKrist 5y ago
    In France fixed rate mortgage rate is the vast majority. Only 2% of mortgage have variable rates: https://www.immobilier-danger.com/taux-immobilier.html https://www.immobilier-danger.com/taux-immobilier.html
- dgfitz 5y ago
  It would however affect people with HELOCs, which I believe is tied to prime + 2%. I have no idea how many people took out a HELOC during the pandemic though.
pmontra 5y ago
Fixed rates have been close to 1% in Italy for a long time. I don't think anybody went adjustable rates in the last years, it could get negative (I think it happened somewhere in northern Europe) but it can easily grow and bankrupt people in the 10 - 20 years lifespan of a mortgage.
- jopsen 5y ago
  Lots of people go variable interest rate. It's cheaper and has been for many years.. The argument is that when interest rates go up, you refinance at a fixed rate while you can afford it, or sell stocks to payoff a larger portion of you morgage. That strategy certainly has issue, because stocks will probably crash a bit when interest rates go up. On the flip side, interest rates will go up slowly, so you might be able to refinance to fixed rate -- the hard part is doing this before it's too expensive. As it'll always be more expensive than sticking with your variable rate.
AnimalMuppet 5y ago
Others have pointed out that this won't affect existing fixed-rate mortgages, and they're right. But it will affect new purchases. For most home buyers, their ability to pay is determined by the monthly payment, not by the total price.

gfodor 5y ago

"The only way is up" is a bad argument for trying to predict interest rates. There are other ways. First, no change. Second, negative. People have been making the "they have to go up eventually!" argument so long now that I'm starting to think that no, they don't have to.

throwawaygh 5y ago

Although true in Europe, the US is less susceptible to this because of our 30 year fixed rate mortgages. In fact, here, it's the opposite: interest rate increases -> decreased housing prices -> decreased tax assessments -> lower total cost of ownership for already-issued loans -> less risk of default for current home owners. In a vacuum.

xxpor 5y ago
I think the risk in the US is if house valuations fall too much and you're severely underwater, people will just walk away from mortgages. I believe we saw this in 08. Not as direct a risk in non-fixed mortgage countries, but still an issue.
jacquesm 5y ago
Plenty of fixed rate mortgages in Europe. 30 year fixed is about 2% here at the moment.
- cromka 5y ago
  Really? WherE? I thought it was exclusively US thing, with UK having some fixed mortgages that were otherwise too expensive to justify choosing them.
  - sofixa 5y ago
    France too.
  - jacquesm 5y ago
    Netherlands, Italy, Poland, probably many others.
  - oblio 5y ago
    Luxembourg, probably other places, too.

mdorazio 5y ago

The first part of your statement would only apply if most mortgages were adjustable rate. They are not (at least in the US). ARM loans were under 10% of all loans in 2019 [1]. Everyone who locked in a fixed rate loan is fine until they need a new home. I would expect rising interest rates to stabilize or maybe slightly decrease market prices, not cause a massive decrease. [1] https://www.washingtonpost.com/business/2019/02/14/adjustable-rate-mortgages-are-becoming-more-popular-with-buyers/?outputType=amp https://www.washingtonpost.com/business/2019/02/14/adjustabl...

throwawaygh 5y ago
Article is about ECB not Fed. The 30 year fixed rate mortgage is a pretty American thing.
- ElKrist 5y ago
  In France fixed rate mortgage rate is the vast majority. Only 2% of mortgage have variable rates: https://www.immobilier-danger.com/taux-immobilier.html https://www.immobilier-danger.com/taux-immobilier.html
dgfitz 5y ago
It would however affect people with HELOCs, which I believe is tied to prime + 2%. I have no idea how many people took out a HELOC during the pandemic though.

pmontra 5y ago

Fixed rates have been close to 1% in Italy for a long time. I don't think anybody went adjustable rates in the last years, it could get negative (I think it happened somewhere in northern Europe) but it can easily grow and bankrupt people in the 10 - 20 years lifespan of a mortgage.

jopsen 5y ago
Lots of people go variable interest rate. It's cheaper and has been for many years.. The argument is that when interest rates go up, you refinance at a fixed rate while you can afford it, or sell stocks to payoff a larger portion of you morgage. That strategy certainly has issue, because stocks will probably crash a bit when interest rates go up. On the flip side, interest rates will go up slowly, so you might be able to refinance to fixed rate -- the hard part is doing this before it's too expensive. As it'll always be more expensive than sticking with your variable rate.

AnimalMuppet 5y ago

Others have pointed out that this won't affect existing fixed-rate mortgages, and they're right. But it will affect new purchases. For most home buyers, their ability to pay is determined by the monthly payment, not by the total price.