Re:Fed raises rates by another 75 bps to fight inflation
by uup on Wednesday September 21, 2022 @09:08PM
(#32933676)
ARMs make up a tiny percentage of mortgages. They are also usually fixed rate for the first 7 or 10 years. How many other types of revolving loans are there?
Re:Fed raises rates by another 75 bps to fight inflation
by labcomputer on Friday September 23, 2022 @03:06PM
(#32955795)
Auto loans are not normally thought of as revolving lines of credit, but many consumers treat them as such. As soon as one car is paid off (or even before), they trade it in for a new one with a new loan (sometimes rolling over negative equity).
The used auto market has been hot the last couple years, so it’s hard to predict what happens. But since most consumers buy based on the monthly payment, higher rates mean smaller, less luxurious car, which has implications for the profitability of auto manufacturers.
Also, some consumers have been using their homes as piggy banks, refinancing each time the value increases. When happens to consumer spending when they can’t do that?
Short term interest rates being higher means that loans which roll over and refi on a scheduled basis (ARMs being one example) will have their interest payments move much higher. That will create delinquencies and stress in the financial markets eventually, but it will take some time for those loans to wind up getting refinanced at higher rates and for the loans to go delinquent. Watch for CMBS delinquencies to start climbing.
When the Fed says that they need to hold rates through 2023 and not cut people should also believe them. That's how they force the weak hands to capitulate and be liquidated. Everyone will naturally try to kick their cans down the road as long as they can, so it won't happen overnight.