Quote:
Originally Posted by opendoor
It doesn't, at least not on a large scale without significant job losses happening. It's an anecdote based on 2nd hand information, and seems to assume that hitting a trigger rate means that people can't afford their mortgage anymore.
People will do basically anything to avoid having to sell their house; very few people are going to incur tens of thousands of dollars in transaction costs and potentially sell an asset that's underwater to switch to renting at this stage. More likely, they'd make cuts elsewhere to make up the difference, with selling their house being the last resort. I mean, that's the whole point of raising interest rates to combat inflation; it removes disposable income from the economy as people reduce spending elsewhere to service mortgages and other debt.
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I know things are different, but that line of thought didn't hold in 2008-09. People (in the US, because Canada wasn't at the epicenter of the GFC/subprime) were walking away from their homes and renting. The thought was that people could keep their car that way, still work and keep things rolling, but if they got rid of the vehicle at that point they were stuck in a house that they couldn't afford payments on.