3 ms·
It's less about printing money and more about falling long-term interest rates (and thus, discount rates). Fundamentally, a house is worth the net present value
by ThrustVectoring 9y ago
It's less about printing money and more about falling long-term interest rates (and thus, discount rates). Fundamentally, a house is worth the net present value of its use value. Lower discount rates means that more of that value gets pulled forward into its present valuation.
An equivalent way of thinking of it is that house prices are fixed by mortgages to rents - when mortgage payments are lower than rents, people buy houses and rent them out, pushing house prices up. Falling mortgage interest rates push mortgage payments lower at the same principle amount, which convinces people to buy and push up housing prices.
- alkonaut 9y agoIn Sweden though, pretty much no one rents a house. This may or may not be relevant to the above observation. It's also generally not allowed to buy flats to rent them out which limits speculation in that market.
- ThrustVectoring 9y agoThe analysis generally works for the value of owner-captured imputed rents, too. If shaving 10 minutes off your commute is worth $100/mo to you, that's going to cause homes closer to jobs to rise in price with interest-rate sensitivity.