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> But households then need to rein in spending to repay their loans Right now it looks like we may be about to witness something else: inflation is picking up,
by t_mann 4y ago
> But households then need to rein in spending to repay their loans
Right now it looks like we may be about to witness something else: inflation is picking up, and if wages even just remotely track the increase in consumer prices (not assured ofc, but conceivable in a time of low unemployment), then those loans and their monthly instalments will actually make up a smaller proportion of household income (especially for those borrowers with fixed-rate loans).
- mrep 4y ago> especially for those borrowers with fixed-rate loans Which is like 90% of US mortgages [0]. [0]: https://www.financialsamurai.com/adjustable-rate-mortgages-as-a-percentage-of-total-loans/#:~:text=Within%20a%20short%20period%20of,mortgage%20rates%20up%20in%202022 https://www.financialsamurai.com/adjustable-rate-mortgages-a....
- robocat 4y agoPeople bid on houses the maximum they can afford (assuming supply of houses is constrained). So house prices are driven by people’s income and the interest rates. If wages go up enough, then you keep the house you have with a low fixed 30 year mortgage (because the mortgage can’t be replaced), and buy another when you want to move.