Source: The Washington Post —
We’ve already seen homeowners grow reluctant to sell their houses because it would mean giving up their cheap mortgages. Now ever-escalating short-term interest rates are going to make it possible for them to turn their financial position into the kind of carry trade that would be the envy of a bank or hedge fund.
We’re seeing an extraordinary dynamic right now — millions of homeowners with low mortgage rates, easy access to low-risk, high-yielding investments and low unemployment. Someone in 1980 who had a 9% mortgage while Treasury notes were yielding 12% and inflation was approaching 15% — with the unemployment rate north of 7% — was more likely consumed by the volatility and uncertainty in the economy than thinking about how to buy bonds that yielded more than their mortgage.
Since the early 1980s, we’ve generally been in a falling interest rate environment that led homeowners to refinance at a lower rate, rather than viewing their mortgage as cheap debt that gave them space to finance higher-yielding investments.
