Everyone is way, way underestimating the effect of interest rate normalization. It completely changes the equation around borrowing money for a house, car, etc. For nearly a decade it actually made financial sense to put the lowest down payment on the most expensive house you can afford. Because the equity you'd build over the past decade would exceed the rote expenses (money that goes down the drain) such as maintenance costs, taxes, interest, home insurance, HOA dues, etc. With normal-ish interest rates, your expenses paid may not exceed any equity built over the next 5 or 10 years. The means mortgage lenders will not allow you borrow as much money for a house. That means everyone has to come up with much bigger down payments and/or houses have to sell at lower prices (really the latter because houses need sold; they can't simply wait years for everyone to scrap together larger down payments).
How many times have you heard someone say in the past decade say something like
I don't see any reason not to buy this car on payments, because with the interest rate I can get I can invest money I would've had to pay upfront and it will grow faster than the interest I pay.
?
What people don't understand is that math only checks out for relatively brief periods within a credit cycle.
As we exit that brief period, as we are, debt has a larger subtraction effect on net worth. That means people cannot take on as much debt.
It's not an exaggeration to say that if you could previously take on $800k of debt, the new number might be $300k.
