- cross-posted to:
- technews@radiation.party
I’m sure there’s an argument to be made about not buying things you can’t afford, but looking at the graph in that article, people are going to get fucked on mortgage renewals. Anyone that locked in for 3/4/5 years are going to be renewing between now and the next couple of years and going from BOC rate of 0.25% to 5% or more is going to hurt.
Look on the bright side. If enough people default on their loans, I might be able to buy a house one day.
That won’t go on your favour. That will go VERY badly.
Depends. Maybe OP meant outright.
Or with a large downpayment. People that bought within or below their means might be well within the position to upgrade using their savings. After all, high interest rates are good for those savings.
Why not? Genuine question. If a bunch of people go under and their houses hit the market, supply increases, homes get cheaper.
At the same time banks get more cautious about who they lend to. If you’re rich and a cash buyer is great as you can snap up a few houses at discount to add to your portfolio. Normal people, not so great.
All those people have to live somewhere. Or there will be a massive increase in homelessness.
With a flood of houses on the market, they will snapped up by… people with a good cash flow… like… corporations. Who will then turn around and rent them out to you and me and all those people forced out of their homes… at whatever rental rate they desire… while raking in the cash.
I assume you can’t afford a house now and couldn’t afford a house when rates were as low as 1%. Even if a house is foreclosed on and dramatically drops in price, do you think you will actually be able to pony up and pay a downpayment and manage a mortgage rate at say… 8 percent? I seriously doubt it. A $1.8 million home (at today’s valuation) isn’t going to pop onto the market at $150,000 in 2 years when the renewal hits.
The reality is that the banks will do whatever they can to keep people in their houses. I checked my bank today to estimate what my mortgage renewal will look like when it comes up and they are offering mortgage terms up to 59 years. I can afford my renewal even at the new rate because I bought a bit over at 1/3rd of what they approved me for… I knew rates would go up, and I knew what I could afford at more typical rates. I’d rather pay the lower rates of course… but…
If my family of four can live cramped inside a one bedroom apartment for years, then overleveraged folks can downsize from the large houses they bought during the pandemic. And, if nothing else, it will feel a little like justice.
That’s not the discussion here though. It was about how the sharp rise in interest rates will flood the market with foreclosed homes… somehow making it magically affordable for people who couldn’t afford a house at the low interest rates.
And now your family of four in your cramped apartment will be competing with a LOT more people for that same number of cramped spaces… supply/demand… it’s going to hurt EVERYONE not just the overleveraged. Meanwhile corporate housing companies will be playing Scrooge McDuck.
I don’t know who is downvoting you because you are completely right.
At the same time, I am delighted at the idea of a bunch of speculators being stressed out and losing a ton of the money they obtained while making housing unaffordable for everybody else.
Housing can be affordable or it can be a good investment. It can’t be both, and it is time it starts being the former.
Haha, I’m in danger!
In 2020 I locked in at 1.79%. 2025 is going to be about a 1.5k mortage payment hike if things stay the same. Luckily I moved to a cheaper area and reduced my mortage and will be paying extra for the next 2 years. Even with all that this is gonna hurt!
I renew next August
RIP me.
Yep. It’s like this is specifically targeting people who could finally fucking afford to buy homes in their thirties and jumped on it before it was too late. (I know it isn’t actively malicious, but the effects down the line - and let’s just throw in https://lemmy.ca/post/1338829 while we’re at it - are going to be horrendous).
Corporate investors can’t wait for you to default on your mortgage! They can scoop up all these discounted properties and rent it back to you.
I think that’s the intent right? How else are property values going to stop skyrocketing if no one is under any sell pressure?
Creating sell pressure is a tiny part of the solution. The real problem is supply. We need 10x the current build rate. Zoning laws, out dated transport infrastructure and greedy developers will ensure this remains a decades long problem.
Personally I would prefer if housing prices were brought down by an increased supply of affordable housing at least commensurate with the population growth rather than by forcing people into foreclosure.
I wonder if home insurance claims are also increasing?
We’re having the exact same issue in the UK. Plus the price of energy pretty much quadrupled.
The era of cheap debt had to come to an end, and before the pandemic the BoE had a plan to gradually raise rates over a 5 year period. Then COVID happened and they dropped rates even lower than they had been before! So rather than a gradual end to the cheap debt era we’ve shoved our foot on the accelerator and gone straight into the wall. With no airbag or seatbelt.
Reminder that it’s actually good to have an appreciable interest rate should a recession ever come. That was pretty sketchy during the '10s, if another big bank had gone belly up there would have been no way to juice the markets.
It super sucks if you have floating rate debt, though.
I really don’t get this at all.
On one hand, I get that inflation is just the expression of the supply/demand curve and that increasing interest rates makes it more expensive to borrow money and therefore lessens demand and should, theoretically drop inflation.
But…
Anyone with half a brain knows that this round of inflation wasn’t caused by overheated demand. It was driven by supply chain issues caused by the pandemic, avian flu, climate change and the Ukraine war. The price of oil alone drove much of the inflation numbers, both directly and indirectly by increasing the cost of production and shipping of other goods.
Does anyone at the BOC seriously think that 10%+ inflation in groceries was caused by overheated demand? Do they seriously think that people should be buying less food to lower grocery demand and reduce prices? Do they think that people will?
Does anyone think that the 6-12 month waits for a new car that are typical now is because gazillions of people are suddenly wanting to buy all at the same time? OK, there probably is pent up demand due to the fact that virtually no new cars were available during the pandemic, and lots of people want EV cars now, but the truth is that availability is way down compared to pre-pandemic times.
I see talking heads from the finance sector on TV all the time saying stuff like, “We need to tame an overheated economy…”. DO WE? And then claiming that the interest rate hikes are working because inflation has come down. Yeah, right. Far more likely is that the supply chain issues are getting resolved, and supplies are increasing.
The truth is that the BOC has only one knob that they can turn, and that’s the interest rates. So they’re going to turn it. And the prevailing wisdom says that it takes close to 18 months for interest rates hikes to have an impact. So the downturn in inflation that started at the beginning of the year has virtually NOTHING to do with the big jump in rates that happened last spring.
As to that 18 month lag, it’s probably even longer this time around because of the mortgage situation in Canada. Those people with huge mortgages have, to large degree, 5 year terms. So a comparatively small number of those people have had to renew under the new rates. And even if rates start to come back down next year, we’re still going to see an increasing proportion of those mortgagees get hit with huge increases to their payments. And that’s going to suck money out of the economy - big time. Are those people already tightening their belts, before they renew? Probably to some extent, but there’s nothing like seeing an extra $2K-3K come out of your bank account each month to make it real.
Certainly some of inflation is caused by a decade of rock bottom rates. Our real estate bubble is probably partially caused by this
Ultimately, the BOC has a mandate to fight inflation, and very few levers to use. They cannot fix the supply chain issues, but they can quash demand, so that is what they will do
- EhForumUser ( @EhForumUser@lemmy.ca ) 5•1 year ago
but they can quash demand
Can they? Remember, it is interest costs that are driving inflation.
The mortgage interest cost index (+29.9%) remained the largest contributor to the year-over-year CPI increase. Excluding mortgage interest cost, the CPI rose 2.5% in May
https://www150.statcan.gc.ca/n1/daily-quotidien/230627/dq230627a-eng.htm?indid=3665-1&indgeo=0
We’ve entered this interesting feedback loop where the higher the interest rates go, the higher the interest costs go, the higher inflation goes, the cheaper it becomes to service debt (debts shrink in an inflationary environment), the more compelling it is to carry such debt, the higher the interest rates go, the higher the…
While it is incorrect to say that the BoC only has one lever, it is true that they have few tools to work with. It is unlikely that any of their tools are appropriate for the situation we face now. Raising interest rates certainly won’t solve the problem – it is the problem.
When your only tool is a hammer then everything is a nail.
I think this is the issue we are seeing aroumd the world now: central banks have the mission to keep inflation around 2% and the only tool the have is the amount of money they are creating, aka the interest rate.
So even if inflation is caused by external factors the central banks are still trying to bring it down to 2% by using the only tool they have.
- EhForumUser ( @EhForumUser@lemmy.ca ) 2•1 year ago
are still trying to bring it down to 2% by using the only tool they have.
Funny thing is that inflation is, excluding mortgage costs, 2.5% YoY, which is within the target range. The tool they are wielding is specifically what is causing high inflation.
QED
Well, higher interest rates mean higher profits for those with capital to invest, and it means lower wages for workers. So I think that’s the primary reason it is an appealing lever for the people that make these decisions.
Higher interest rates also hurt small businesses, like, say, independant grocery stores, but don’t really hurt the entrenched mega-corporations. And the economic decision makers in Canada have communicated pretty clearly that they view the “efficiencies” created by monopolistic markets to be a desirable thing as well. So they can keep wages down, increase financial profits, and knock independent businesses out of the market to reduce pesky competition while telling us and themselves that it’s actually a necessary and responsible response to inflation.
I want to get off Mr. Macklem’s wild ride
Remember this expert said it was transiatory inflation. Nothing to be worried about. 3.5 bump later and likely more to come.
No idea how he gets to keep his job. I would be sent out the fucking door if I got something so wrong.
This is gonna be painful
Damn, will they stop?
Yo, I don’t know
Turn off the lights and I’ll glow!
To the extreme I rock a hike like a vandal.
Buckle up as we’re in for a ride. Thankfully this will only impact those who bought in the last 5~ years. Pricing before then was much more reasonable and should be able to absorbed.
Yup. I bought during the slight slump in 2019 and intentionally cheaper than I could afford so I’m still alright. Some folks I know bought at the peak 21-22 and spent all they got on mortgages under 1.5%. I don’t dare ask how they’re doing.
https://www.rbcroyalbank.com/rates/prime.html
RBC has increased their prime rate to 7.2%; was 6.7% in May
