It is the limit of potential borrowing which will do so. Almost all the money that could be lent at acceptable risk has already been done, the only way to lend more money in the face of negative savings rate will be to make even riskier loans, which will have to be at a higher interest rate to cover the risk premium.
If this is true, then how is it I can still find a 30-year mortgage at 6%? The 30-year mortgage is based on the expectation for future inflation. I'd say, by virtue of this rate, that there is little expectation for inflation in the future or concern over your alleged increase in risk.
..the only way to lend more money in the face of negative savings rate
The problem with the rate of savings in this country is the method in which the government calculates the rate of savings. It does not reliably track the myriad of ways Americans save. The claim that Americans aren't savers is all myth. Government methodology understates income and overstate expenses mostly because it does not count capital gains from the sale of stocks or homes as part of disposable income, but it does count capital gains taxes as expenditures.
The U.S. Treasury data shows that Americans have earned more than $3.5 trillion in capital gains since 1997. This is more than the combined gains of the preceding 20 years.
In a recent Bear Stearns report on savings, David Malpass (NRO financial writer and Bear Stearns chief economist) shows per capita assets in the U.S. of $89,800 that make us the top saving country in the world. (Japan is second at $76,900 per head.)
We are experiencing massive capital inflows into the U.S. at very low interest rates. A recent 10-year Treasury auction saw such strong demand that the yield on the 10-year bond actually dropped. Core inflation is holding steady at about 2% and the price oil keeps dropping as the dollar strengthens.
If you look at historical information, it's a dubious assumption that a big increase in mortgage interest rates will trigger a nationwide decline in home prices. National housing prices did not fall in the past when mortgage rates rose to even twice their current level. Even if we do enter a period of rapid inflation, that will not hurt housing prices. Inflation will increase the value of tangible assets like real estate.