Trapped by Your Mortgage

I was watching NBC Nightly News the other night, and they ran a story about how there is no housing inventory because people are trapped in their mortgages.

They got a 2.5% mortgage during our prolonged period of zero interest rates, and now that interest rates have risen, getting a new house would be prohibitively expensive, even when taking their home equity into account.

This is why I love markets—you never know what is going to happen next. When interest rates rose, there were quite a few housing doomers online pointing to the fact that the typical mortgage payment had risen from $1,000 to $1,800 or so. Looking at this situation strictly in terms of housing affordability, that would seem to be correct—nobody would be able to afford a house, and prices would crash.

I want to point out that nobody predicted this. I expressed skepticism that the housing market was going to crash, but I didn’t really understand the mechanics behind it. Nobody did. It caught everyone off guard.