With mortgage rates hovering around 8%, borrowing money has become more expensive now than in recent memory.
This is a big shift, says Professor Andrés Shahidinejad. “All of a sudden, the idea of renting has become, relatively speaking, more attractive than buying,” he says.
He says if you are considering buying under current conditions, make sure you are prepared for the high costs. “Borrowing money is just much more expensive,” Shahidinejad says. “This is really the basic takeaway that households should not lose sight of when we talk in sophisticated ways about the impact of increasing interest rates.”
Professor John Bai, a corporate finance expert, reflects on how large household purchasing and corporate investment decisions can follow a similar set of logic. “Firms are cutting their investments; they're relying more on internal cash flow instead of raising equity or debt from the external market,” he says.
Bai says there may be relief from high-interest rates in the future, but the rate and magnitude of their fall are unclear at this time.
Read more at Northeastern Global News