Squeezed by high interest rates and record prices, homeowners are frozen in place. They can’t sell. So first-time buyers can’t buy.
If buying a home is an inexorable part of the American dream, so is the next step: eventually selling that home and using the equity to trade up to something bigger.
But over the past two years, this upward mobility has stalled as buyers and sellers have been pummeled by three colliding forces: the highest borrowing rates in nearly two decades, a crippling shortage of inventory, and a surge in home prices to a median of $434,000, the highest on record, according to Redfin.
People who bought their starter home a few years ago are finding themselves frozen in place by what is known as the “rate-lock effect” — they bought when interest rates were historically low, and trading up would mean a doubling or tripling of their monthly interest payments.
They are locked in, and as a result, families hoping to buy their first homes are locked out.
Oh no not the nightmare that is Japan, I want more GDP so the rich get richer.
Almost all countries with lower levels of inequality and decent income have inflation. Deflation actually works against the poor because they are the ones needing to borrow to make any large purchase and the banks can only set rates so low. The solution to wealth inequality is absolutely NOT deflation.
It’s not a solution to wealth inequality, but doesn’t drastically worsen inequality (Cantillon effect) like the dollar has since the Nixon Shock. We have 100% been played for fools.
Inflation works against the poor because that interest rate is added to the real rates offered to the poor - borrowers, not lenders, pay the price.
And what do you think happens when there is deflation, especially if it is negative by several percent? The real rate people pay is up significantly even if the nominal rate is 0%.
Nothing happens. We don’t take out as many loans we can’t afford, we don’t make a bunch of subprime loans with other people’s savings, and our time preferences aren’t shortened.
I agree that real rates are high, so I’m not sure what you’re getting at with that.