Not a particularly insightful article, but I suspect mortgages have a big part. If you're locked into a 2.5% mortgage trading that for 7% is a tough sell, given property values feel pretty flat.
The above isn't 100% true, some banks do hold onto their own mortgages. However it is sill reasonable accurate.
If I understand correctly, this is how the Danish mortgage system works.
The incentive you would have to offer would erase most of that $100,000 difference you pulled out of a hat.
I got a mortgage at 3% some years ago for an apartment. Since then we’ve had two kids and paid off a chunk of the mortgage with our monthly payments. At this stage in my life I’d absolutely be looking to convert that into buying a larger home and would be happy to pay a higher rate for it to happen. But not literally double, which is where rates are today.
It's good for the bank for obvious reasons, and it's good for the borrower (potentially) because it reduces the cost of moving.
It's complicated with mortgages because, in the US, mortgages are mostly securitized and resold. This covers 65% of mortgages in 2022 according to
https://www.newyorkfed.org/medialibrary/media/research/staff...
So your mortgage isn't directly on your bank's book. The bank sold it, and then likely bought it back but as part of an MBS.
In the US, there are a lot of small banks that rely on this to reduce their exposure to property prices in the local area they originate mortgages in.
Why would they do that when the US government is paying 4%+, and is much more creditworthy than an individual?
That is why a 30 year fixed home mortgage is ~6%+. Individuals have to pay a premium since they do not have the power to print USD, and so more default risk has to be priced in. Plus the labor expenses of underwriting and issuing a new loan.
So if the mortgager wants to get rid of the mortgage so they can move, and the mortgagee wants to get rid of the mortgage because it's worth only half of its par value, there should be a massive incentive for a fair deal to happen.
Instead, the only option is for the mortgager to pay off the par value, which is a huge windfall for the mortgagee and a rip-off for the mortgager. So the mortgager decides not to move and everybody loses.
The borrower wants to sell the house, so their main concern for the sale of their house is to earn enough from the sale to pay off the mortgage and be able to buy another house. In which case a higher new mortgage interest rate for the new house could be offset by lower house prices, but supply and demand have not recalibrated to that (yet).
But of course, selling a house is not between the mortgage borrower and mortgage lender, it is between the homeowner and the potential new mortgage borrower, so there is an additional party involved whose needs need to be met.
> and the mortgagee wants to get rid of the mortgage because it's worth only half of its par value, there should be a massive incentive for a fair deal to happen.
The lender can sell the mortgage debt anytime it does not want it (and probably has anyway).
The lender is currently deciding to lend to the government, at 4%, or an individual homeowner (or whatever others borrower). Of course, if the least risky entity is giving you 4%, then everyone else needs to give you more than 4%.
Interest rates from previously issued mortgages are not relevant in making the decision for which interest rate to lend at now.
If the mortgagee is the government, then it has even more incentive because this broken system is killing productivity.
In most cases the mortgager is selling their old house and buying another, keeping the same supply/demand balance. But in some cases the mortgager is selling one house and building a new one, increasing supply and lowering prices.
The Feds do not have much control over those parameters though, so they play with what they (politically) can.