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Originally Posted by pylon
This is what I don't understand.
This is a direct result of the rise in interest rates, being used to bring down inflation. So your inflation taming tool, is the biggest factor in causing more inflation. Isn't this just the snake eating itself? It all seems like quite the scam at this point.
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No, because they understand what is market-driven inflation and what is a side effect of policy. A 3.5% inflation rate with mortgage interest inflation being 30% is completely different than a 3.5% inflation rate with mortgage interest inflation being flat or negative, and they will proceed accordingly.
And the same happens in reverse. Eventually mortgage interest inflation will be negative. If we have a 2.5% inflation rate but mortgage interest inflation was say -40%, then they would be concerned about inflation even though the headline number is within range. That's because it would be being artificially dragged down by rate cuts.
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I'm on a variable and my mortgage could double and we'd still be fine. We wouldn't like it, but we wouldn't be on the street. We didn't buy over our heads. But some people in the entry market, had no choice. If they wanted a home to call their own.... they had to stretch to their limit, that or continue to overpay for rent. I feel for those people.
Is Tiff Maklem gonna go beat his meat for hours when thousands of people start losing their homes? Is this guy getting off on destroying families, putting people on the street and driving them into financial ruin? We had a guy on our street self delete a couple months back, and word through the grapevine was it was directly related to these interest rates. Covid caused him to skate a fine line as it was and these rates were the final nail in the coffin and ruined him financially.
I really think they need to pause for a good 6 months and let these rates sink in a bit.
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Essentially that's what's supposed to happen. Higher rates cause people to spend less money and disincentivizes taking on debt, which helps cool demand.
But yes, it does hurt people who are over-leveraged. Which is why anyone taking on adjustable rate loans always needs to proceed very cautiously. There's a reason why they were stress testing mortgages at ~5% when you could get a ~1% variable in 2020 and 2021.