“Variable Rather Than Fixed” Was Once the Conventional Wisdom... An Accounting PhD Warns the 75% Who Prefer Variable Rates of the Worst-Case Scenario: Mortgage Rates Exceeding 10% (Page 2)

The article examines the uncertainty surrounding mortgage-rate trends, considering the environment around interest rates in Japan based on historical facts rather than attempting to forecast where rates are headed. It begins by explaining that the collapse of the asset bubble, which continued until 1990, was followed by policy-rate hikes to deflate it, alongside tighter window guidance on total lending volumes.

During the process of bursting the bubble, monetary policy was excessively accommodative in response to the yen-appreciation recession, which is said to have overheated asset prices. Interest rates were then raised sharply and measures were taken to curb soaring land prices, resulting in a prolonged recession and deflation.

The peak and subsequent decline of the working-age population around 1995, the arrival of the employment ice age and increases in consumption tax also coincided, cooling domestic consumption and contributing to deflation. The difficulty of forecasting interest-rate trends is emphasized against this historical backdrop.

Within this context, rather than asserting what the future holds for mortgage rates, the author suggests that a worst-case scenario in which rates exceed 10% could realistically occur, given the premise that variable-rate mortgages account for a high proportion of the market.