And their neighbors will have already found out they had to sell for lower amounts, resulting in some others walking away instead of bringing money to the table at a sale. At thus begins the downward cycle.
If people bet on the resale value of housing to go up they also necessarily bet on lower interest rates.
Those rates are for 20% down, good credit primary residences purchases. Rates for investment or vacation properties are generally about 1-2 percentage points higher.
Mortgage rates in the US are indirectly and directly subsidized by the government across a huge spectrum of programs- See FHA loans, VA loans, etc. However one of the biggest contributors to low 30 year prices are the government backed corporations like Fannie Mae and Freddie Mac that purchase mortgage debt and repackage it into mortgage backed securities. Way too much the go into here, but a lot of the 2008 financial crisis has its roots in the policies that created Fannie Mae and Freddy Mac. Regardless, they have proven a fairly effective way to keep mortgage rates low.
But are lower shorter term fixes also available? Presumably the 30y fix is a pretty stable rate, and just acts as an upper bound? So why not go with anything available that's lower, with that as a worst case fallback that's unlikely to be materially different after x years?
As to why go for a 30 year loan instead of a lower interest rate 15 year the answer is basically cash flow and opportunity cost. A 15 year loan may result in paying less interest, but the monthly interest + principal payments are more. Your average borrower will qualify for a larger 30 year loan because the analysis is based on their ability to afford the monthly payments based on their current income.
Even people who can easily afford a 15 year loan will choose a 30 year because the 0.5-1% interest rate is lower than the expected returns of something like stocks, so it makes sense to stay leveraged. There are also tax benefits to paying interest (but not principal) on loans, but these are way less important since the trump tax reforms.
And I just reread your question, and I think you are asking about 5/1 loans. The reason there is that a) interest rates so fluctuate, a lot- they were above 9% in 1991. With a 30 year, you can choose when you refinance (there is no penalty to paying off a home loan early in the US) whereas with a 5/1 you might find yourself getting forced into a higher interest rate- potentially much higher to the point it’s unaffordable. 5/1s also actually have a higher interest rate than 15 years currently, as they aren’t considered “conforming” to various US government programs.
Here a normal thing to do is something like 30 year loan on a 1/2/3/5 year fixed rate, after which it would be some relatively horrendous variable rate [^] - but you don't pay that, you just switch to a new fixed rate at the same or other provider (technically remortgaging).
So you're leveraged for the full 30 (or whatever) year term regardless, but you make some decision about how 'good' you think the rates are at the moment and what direction they're moving in (and pretend your adversary isn't a massive bank with a lot more information and smart people behind it) and fix for accordingly many years (more costing a slightly worse rate of course).
[^] - you could also just choose a variable rate to begin with, but that's not really relevant here, I just mean I think typically the rate you'd drop to after the end of the fixed rate would be worse than that, as in you're going to pay more spread over whatever it's tracking.
On the other hand, it probably reduces risk to take the 15 year loan if you can afford the payments, in order to more aggressively build home equity and shield yourself from a sudden shock/downturn. If rates shoot up after, say, 5 years (and home values drop 20%), someone who's made 5 years of payments on a 30 year loan will be way underwater, whereas someone who's made 5 years of payments on a 15 year loan still has positive equity.
A primary residence even makes a good component of diversified portfolio so long as it is not the sole or dominant aspect of that portfolio.
I understand your point about it being a "forced savings plan", but with 5-10x leverage on most loans even a housing market that appreciates at inflation can provide significant returns (or losses) in the long run.
"FRMs are dominant in Belgium, France, Germany and the Netherlands, while ARMs are prevailing in Austria, Greece, Italy, Portugal and Spain"
UK is also ARM but not included as not in euro zone.
Note that at least in the NL market which is the only one I know personally, lots of people do get shorter term fixes compared to the US where almost every mortgage is fixed for its lifetime.
This is similar to how increases in local incomes are actually captured by landlords rather than workers. If housing is scarce and people need it to live, owners of that housing have the bargaining power to raise prices to capture available income.