The Great Freeze
Understanding High-Interest Rate Paralysis
Around the world, millions of people and businesses feel “stuck.” A rapid rise in interest rates, designed to fight inflation, has created a powerful “lock-in” effect. This is the story of that paralysis.
The “Golden Handcuffs”
Millions of homeowners are “locked in” to their ultra-low mortgage rates from previous years. The prospect of selling and buying a new home at today’s high rates is financially crippling, creating a gap of 4% or more.
(e.g., moving from a 2.5% rate to a 6.8% rate)
The Homeowner’s Dilemma
Even if a family needs a bigger home, the math doesn’t work. Selling their current home means giving up a “golden” 2.5% rate, only to face a new 6.8% rate. This chart shows the staggering difference in monthly payments on the *same* loan amount.
This paralysis freezes the housing market, as inventory dries up because existing owners refuse to sell and lose their low rates.
The Ripple Effect
This freeze extends far beyond housing, paralyzing business investment and consumer spending.
Business Paralysis
A café owner wants to expand, but a 9% business loan makes it unprofitable. The expansion is “paused.”
- Result: No new jobs for baristas.
- Result: No work for contractors.
- Result: No sale for an equipment supplier.
Consumer Paralysis
A family needs a new car, but faces a 7.5% auto loan. They decide to “make it last” one more year.
- Result: Car dealerships see lower sales.
- Result: Auto manufacturers slow production.
- Result: Local mechanics get more repair business.
The Chain Reaction of Paralysis
High borrowing costs don’t just affect one person. They trigger a chain reaction that slows the entire economy, moving from central bank policy right down to individual decisions.
High Inflation
The economy is “too hot.”
Central Banks Raise Interest Rates
Goal: To “cool down” the economy.
Borrowing Becomes Expensive
Mortgages, car loans, & business loans cost more.
Homeowners Don’t Move
Locked in by “golden handcuffs.”
Businesses Don’t Invest
New projects are no longer profitable.
Consumers Don’t Buy
Delaying large, debt-financed purchases.
Economic Activity Slows
Fewer transactions, less hiring, reduced growth.
How Does the Freeze “Thaw”?
This paralysis isn’t permanent. The economic “freeze” will eventually thaw, typically in one of three ways:
Rates Come Down
Central banks achieve their inflation goal and begin to lower interest rates, making new loans more affordable.
Wages Catch Up
Incomes rise over time, eventually making the new, higher payments feel more manageable and “normal.”
Life Forces It
A major life event (a new job, a growing family, divorce) makes moving or spending a necessity, regardless of the cost.