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The Atlantic Divide – The New York Times

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Economic policymakers around the world are raising interest rates to contain the rising cost of living. Federal Reserve Chairman Jerome Powell reiterated his commitment Yesterday’s speech on that policy. He warned against giving up inflation “prematurely” and promised to “keep the course until the job is done.”

But rising interest rates and high inflation can both actually have very different effects depending on who you are and where you live. For example, gas costs are much more important for people who commute long distances. Rising interest rates are costly for those relying on credit cards to pay their bills, but could be good news for retirees living off their savings.

In today’s newsletter we want to explore some striking examples of these differences. That’s the housing market on both sides of the Atlantic. In the UK, rising interest rates threaten to force some people out of their homes. In the United States, there are also cases that impede the movement of people.

Earlier this year, the typical US homebuyer was able to take out a mortgage at just over 3%, low by historical standards. Today, a buyer can expect to pay more than twice her interest. This averages him over 6.5%, the highest interest rate in over a decade. Specifically, if he bought a $300,000 home with a 20% down payment, his monthly mortgage payments would be $1,000 and he’s more than $1,500.

However, if you own a home in the US, your monthly payments may not be increasing at all. This is because most of the homes in this country are purchased using his 30 year fixed rate mortgage. If you fixed the 3% interest rate last year, your monthly payments would stay the same for the next 30 years, no matter what happened to interest rates, house prices, or overall inflation.

Mortgage rates are also rising rapidly in the UK. However, the impact of rising interest rates is very different. This is because most mortgages have fixed interest rates that are only his 2-5 years. (Some have variable rate mortgages that change automatically when the Bank of England raises or lowers rates.) As my colleague her Eshe Nelson recently reported, millions of Britons expect interest rates to jump over the next year. Inevitably, some of them cannot afford the higher payments as a result and are forced to leave their homes.

For most U.S. homeowners, the stability offered by fixed-rate mortgages is now a major advantage, doubtless effectively shielding them from the effects of both high inflation and rising mortgage rates. No room.

But not everyone comes forward. In the US, you cannot take your mortgage with you when you move to a new home. As a result, homeowners who may have been planning to move in the next few years are choosing to keep the status quo, for example to upgrade to a larger home or downsize after their children go off to college. and have strong incentives to persevere. to their low interest rates.

As a result, fewer people are putting their homes up for sale, and home prices remain high despite other measures slowing the housing market. This means that first-time home buyers face a quadruple predicament. There are not many houses available for purchase. Available homes are expensive. Rising interest rates are robbing buyers of power. And if you don’t buy it, you have to keep paying the rent. It is also rising.

Roman Sustec, an economist at Queen Mary University of London, said: new borrower. In Britain everyone will be a loser. “

These complex dynamics also affect the economy as a whole. Fixed-rate mortgages are so prevalent in the US that the Fed can aggressively raise interest rates without worrying about millions of people losing their homes. But it also dampens the impact of these rate hikes.If U.S. homeowners face a sudden rise in housing costs, they may hold off on buying elsewhere. Americans will be able to continue spending, which could help sustain inflation for longer.

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