I disagree with your scenario. No way are governments going to let interest rates go up. They know it will kill a recovery. And if the free market tries to raise rates (as a free market should when pricing risk) government will step in and suppress it, or at least try to. This is what Bernanke is doing now in the US by buying longer term US treasuries. The more immediate risk for FHB's (& anyone else with a mortgage) is unemployment. Unfortunately, sentiment is rolling over into negative territory now, until that goes away house prices *overall* wont be appreciating like they used to.
