Until recently, mortgage holders in advanced economies seemed safe knowing that interest rates would stay the same for some time.During their entire lives as homeowners, there is little sign of problematic inflationnot to mention a suggestion The central bank will raise interest rates quickly to stop itThe worry isn’t unmanageable repayments or falling prices, but finding enough deposits to keep up with a market that shows no signs of slowing down.

Many people now find themselves revising these expectations. The Bank for International Settlements – the so-called central bank of central bankers – has issued a warning Rising interest rates could make existing debt burdens unmanageable and cause house prices to fall. Some have wondered if housing debt represents the next “Minsky moment”: a term used to denote the moment when a debt-fueled asset bubble unwinds and leads to an economic collapse.

Much ink has been written to explain the prolonged housing boom in advanced economies. Cheap money to buy a property is certainly an important factor. Interest rates have been kept low in order to boost wages and economic growth. A side effect of these measures is a sharp increase in demand for housing, which is facing supply constraints in many large cities.

If this boom is about to have its own “Minsky moment,” an outright crisis should be avoided. While some banks may be overexposed to real estate, regulators have not ignored this risk. Unlike in 2008, tighter capital requirements should better isolate banks, and some authorities have also been leading the way, limiting the ability of households to become overleveraged.

Still, regulators cannot remain optimistic. Many mortgage borrowers who bought during the boom will be saddled with huge debts — keeping up with house price inflation is expensive. While these highly leveraged loans may not make up a significant portion of bank books, they could go bad as borrowers struggle to keep up with higher interest rates, record energy price hikes and other cost-of-living pressures.

Even if wider financial turmoil can be avoided, the fall in prices will not be without impact. Economists have long speculated that households’ willingness to spend is related to wealth and income. If house prices fall sharply, consumption may fall. Any spending shortfalls due to this so-called “wealth effect” could also be exacerbated by individuals spending a larger percentage of their income on debt service payments when interest rates rise, rather than buying goods and services in the wider economy. In communities where defaults or mortgage stress may be more concentrated, unwinding the housing bubble could also have far-reaching effects.

There are more benign possibilities. If inflation is contained, the rise in long-term interest rates — which tends to affect mortgage rates — could be moderated. Many households can cope with the situation by tapping into the savings buffer they have built up during the pandemic. Home prices may not fall as feared, or not at all.

That doesn’t mean the risk doesn’t exist. Supporting growth and avoiding economic crises through years of “cheap money” is an understandable choice. With the dawn of a new era of monetary tightening, central banks and governments alike must hope that housing debt accumulated in the previous era will not weigh too much on the outlook for the next.