4 ms·

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices. I'm not sure about Denm

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices. I'm not sure about Denmark, but in Germany house prices have about doubled in the last 10 years, (with the ECB insisting there's no inflation). Given the choice between high interest rates and cheaper house prices, versus low interest rates and expensive houses, I'd rather take the former, since rates can always come down again, allowing you to refinance and pay less for your house overall. When (in the current environment) rates start going up again (they're basically at the lower bound now), house prices will fall, however home "owners" (with mortgages) won't pay less for their houses because their mortgages are fixed (and if they weren't fixed, they'd be doubly screwed by the high rates).

throw893232 6y ago
Little trick for a piece of mind: Recalculate prices and salary into gold. You will discover that things are more or less the same and stable. Shoemaker in 15th century made similar money as today.
- OscarCunningham 6y ago
  Given that the gold price has increased by a factor of 8 in the last 20 years it's hard to see how that could be true. Even if it happens that there's an equivalence between today and 1450, a shoemaker in 2000 would be earning 8 times more. EDIT: To put it another way, over the last 20 years the Dollar, Euro and Pound have all approximately averaged out to their target 2% inflation rate. Prices in gold terms have averaged to 9% deflation per year. Since 9 > 2, gold is less stable than modern fiat currencies.
- bdjfkrk 6y ago
  Not sure shoemaker is a good example. Wouldn't that today be Nike, Adidas, huge corporations and not individuals? An individual shoemaker today is probably in the luxury business.
BlargMcLarg 6y ago
Same thing in the Netherlands. Prices doubling. The monthly costs are similar to years ago, but the high barrier to entry makes it impossible for young people to get anything similar to previous generations for the same money. As a result, rent goes up and young people now pay much more rent than before, semi-forced. Low rates do not help when the market is this overheated. Worse, disincentivising people from prematurely paying their mortgage sounds like a great idea for recreating a certain crisis not too long ago.
- the-dude 6y ago
  Case in point : I owned a 300k house with my ex, we had a variable Euribor mortage taken out in 2004. With the Euribor at zero or below, the actual rate was close to 0.5%. Roughly translated to about €200 a month. Now I am renting, a third of the space, for about three times the money ( maybe even more ).
- firebacon 6y ago
  The average price of existing houses in the Netherlands increased by 55% since 2013. Source: https://www.cbs.nl/en-gb/news/2020/52/house-prices-almost-9-percent-higher-in-november https://www.cbs.nl/en-gb/news/2020/52/house-prices-almost-9-...
  - BlargMcLarg 6y ago
    I wouldn't call 55% in 7 years "only". Especially given this statistic doesn't highlight type of housing and price groups (read: housing in the far outskirts pulling averages down, though COVID is changing this dynamic). Starter wages have barely risen since then, let alone kept up. And along with the crisis, one now gets far less mortgage for the same inflation-adjusted salary than in 2013, despite the lower rates.
- jacobion 6y ago
  I think there might be two things going on here: one is a rise in various forms of social inequality, between generations, between people living in tier one cities and smaller cities or towns, between workers in certain industries and the rest. I tend to think this is bad, but I don't think it's related to interest rates. The other is the culmination of a fifty-year process set in motion when Western economies went from gold-backed currency to fiat currency, and then from political control of currency to independent Central Banks. During this period both inflation and interest rate have moved monotonically downwards, essentially both to zero. What if you assume that this state of affairs is strange because new, but perfectly benign, and will last indefinitely? It's absolutely true that those people who bought housing and other assets when rates were 10% have profited from a huge windfall. However, it's a one-off windfall. They simply got a discount, because 20/30/40 years ago, borrowing long term to pay cash was hugely burdensome. Today's homebuyers will buy assets at prices which reflect low interest rates, and they will pay low interest rates on their loans. As young workers, they might actually be better off in the long run. In a long term regime of zero rates, more of society's wealth is going to producers (and risk-takers), less is going to people who just hoard cash. You might think it's nice for society to do something to correct this one-off inequality. Maybe so, but it's not fundamentally different to the other inequalities which exist. In particular, it's unclear why either artificially raising rates or artificially raising inflation are the solution. Neither of these are particularly effective in helping people who have got the short end of the stick. Both benefit some groups of rich people and some groups of poor people, and harm some other groups. There are much better solutions which can be pursued by governments directly without political interference in currencies. Of course the type of person (job, family status, education level) who could buy a house in Berlin or London in the 1990's could not buy that same house today. You can either say 'too bad, you were out competed', or you can try to do something about it: pay teachers and social workers more, build more houses, make smaller cities more desirable to live in, provide better training and career opportunities etc. Blaming this on the dubious idea that cash in the bank should accrue 8% interest per year lets governments off the hook for actually solving the problems, and just advocates a different set of inequalities and broken incentives.
throwaway-8c93 6y ago
> with the ECB insisting there's no inflation House prices are represented in the consumer price index as 'imputed rent', generally by far the highest weight item. Last time I checked, its weight was at 9%.
frafra 6y ago
You are right about the house prices in Germany, but your statement about ECB is not entirely correct. ECB does not "insist there is no inflation" in Germany or in Europe: in both cases it has been around 2 % for the last 20 years: https://portal.dataviz.ecb.europa.eu/views/HICP_dashboard_ETS_16049391112180/InflationDashboard https://portal.dataviz.ecb.europa.eu/views/HICP_dashboard_ET... There is a reason why the ECB estimation of inflation (HICP) seems lower than expected in your experience: it does not take into account owner-occupied housing (OOH) prices, which include O.1.1.1.1 (Purchases of new dwellings index). Mario Draghi (former resident of the ECB) was in favour of that, but the European Commission thinks that OOH is not suitable to be included in HICP yet. References: - https://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-768-F1-EN-MAIN-PART-1.PDF https://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2... - https://www.ecb.europa.eu/pub/pdf/other/ecb.mepletter180615_Loones.en.pdf?c70e96e017400693be88594080334077 https://www.ecb.europa.eu/pub/pdf/other/ecb.mepletter180615_...
- bjeds 6y ago
  I may be tired or dumb, but your argument sounds circular to me. Of course the ECB won't insist there is no inflation if they themselves have defined housing to not be included in the definition they use to measure inflation. This doesn't mean that the parent commentator is wrong nor does it imply that ECB is correct in their definition. For most people, housing is a significant cost in day to day life, and will of course be felt as inflation, regardless of how it's defined and measured in monetary policy. If it were up to me, housing should also be included in the definition of inflation. That would be a good way to lay bare the downsides with an aggressively expanding monetary policy.
  - frafra 6y ago
    It is not a circular argument to show that a statement is not correct: ECB never said there is no inflation in the first place. ~2% is not "no inflation"; 2% is the target that the ECB aims at. In addition to that, I added an explanation why such a number seems lower that you could expect. Please note that ECB does not define the HICP, the European Commission does it: https://ec.europa.eu/eurostat/web/hicp/faq https://ec.europa.eu/eurostat/web/hicp/faq
pizza234 6y ago
I'm very skeptical at the following claim, if taken at face value: > Germany house prices have about doubled in the last 10 years In the capital, prices 10 years ago were extremely low. People who bought apartments between 10 and 20 ago bought them as low as 1000€/sqm, which is exceptionally low for a European capital. Under such conditions, price doubling is expected independently of any policy.
- martin_bech 6y ago
  German housing is a litle different, as many prefer to rent, so less demand for beeing an owner.
  - p1esk 6y ago
    Why do they prefer to rent?
    - allendoerfer 6y ago
      After WWII the German government created strict renter protection laws and the state invested heavily in relatively high quality public housing. You can compare the results to the UK, which cities were also bombed, but invested in private housing instead. Germany also famously had been "the sick man of Europe" before the current boom, were real wages did not rise for a long time.
  - raxxorrax 6y ago
    True, if I have no chance to finance it, you prefer renting compared to homelessness. But workplace mobility, yeah!
- Cthulhu_ 6y ago
  10 years ago was the peak of the housing bubble collapse (or just after), so the price of houses was depressed for a while. That said, housing prices have gone up by ridiculous amounts since then, in part thanks to economic recovery, in part due to low mortgage interest rates, and in part (linked) due to low savings account rates. Better to put that money in real estate (and more risky investments on the stock market) than let it wither in a savings account. But hey, for a while a few people made a lot of money.
martin_bech 6y ago
You are right, houseprices in denmark are going crazy.. But makes sense since 0% fixed mortgages.. you can get a 30year fixed at 0.5% with the option of only paying the interest, for the first 10years
PartiallyTyped 6y ago
I am paying a 950 euro rent for a <24 sq meters in Copenhagen, not downtown Copenhagen, inc water/electricity/heat/washer/drier. The situation is absurd. Back home (still in Europe) I paid half for 35-40 sq meters. Yes, the salaries offset some of it, but still..
- Cthulhu_ 6y ago
  The salaries you're eligible for offset some of it, but there are a lot of people that have to get by on minimum wage in the big cities as well. Instead of making mortgages more attractive, I think governments should increase minimum wage. If they do a correction to match up with inflation (and cost of living, since the two don't seem to align), suddenly minimum wage will jump to €30/hour.
- jacobion 6y ago
  Why do low interest rates cause high rents? High house prices sure, but why does it affect rents? You prefer to live in Copenhagen than the part of Europe you come from, for the higher salaries among other reasons. Probably lots of other people share your preference. Doesn't this suffice to explain why rents are much higher in Copenhagen than in your home region?

throw893232 6y ago

Little trick for a piece of mind: Recalculate prices and salary into gold. You will discover that things are more or less the same and stable. Shoemaker in 15th century made similar money as today.

OscarCunningham 6y ago
Given that the gold price has increased by a factor of 8 in the last 20 years it's hard to see how that could be true. Even if it happens that there's an equivalence between today and 1450, a shoemaker in 2000 would be earning 8 times more. EDIT: To put it another way, over the last 20 years the Dollar, Euro and Pound have all approximately averaged out to their target 2% inflation rate. Prices in gold terms have averaged to 9% deflation per year. Since 9 > 2, gold is less stable than modern fiat currencies.
bdjfkrk 6y ago
Not sure shoemaker is a good example. Wouldn't that today be Nike, Adidas, huge corporations and not individuals? An individual shoemaker today is probably in the luxury business.

BlargMcLarg 6y ago

Same thing in the Netherlands. Prices doubling. The monthly costs are similar to years ago, but the high barrier to entry makes it impossible for young people to get anything similar to previous generations for the same money. As a result, rent goes up and young people now pay much more rent than before, semi-forced. Low rates do not help when the market is this overheated. Worse, disincentivising people from prematurely paying their mortgage sounds like a great idea for recreating a certain crisis not too long ago.

the-dude 6y ago
Case in point : I owned a 300k house with my ex, we had a variable Euribor mortage taken out in 2004. With the Euribor at zero or below, the actual rate was close to 0.5%. Roughly translated to about €200 a month. Now I am renting, a third of the space, for about three times the money ( maybe even more ).
firebacon 6y ago
The average price of existing houses in the Netherlands increased by 55% since 2013. Source: https://www.cbs.nl/en-gb/news/2020/52/house-prices-almost-9-percent-higher-in-november https://www.cbs.nl/en-gb/news/2020/52/house-prices-almost-9-...
- BlargMcLarg 6y ago
  I wouldn't call 55% in 7 years "only". Especially given this statistic doesn't highlight type of housing and price groups (read: housing in the far outskirts pulling averages down, though COVID is changing this dynamic). Starter wages have barely risen since then, let alone kept up. And along with the crisis, one now gets far less mortgage for the same inflation-adjusted salary than in 2013, despite the lower rates.
jacobion 6y ago
I think there might be two things going on here: one is a rise in various forms of social inequality, between generations, between people living in tier one cities and smaller cities or towns, between workers in certain industries and the rest. I tend to think this is bad, but I don't think it's related to interest rates. The other is the culmination of a fifty-year process set in motion when Western economies went from gold-backed currency to fiat currency, and then from political control of currency to independent Central Banks. During this period both inflation and interest rate have moved monotonically downwards, essentially both to zero. What if you assume that this state of affairs is strange because new, but perfectly benign, and will last indefinitely? It's absolutely true that those people who bought housing and other assets when rates were 10% have profited from a huge windfall. However, it's a one-off windfall. They simply got a discount, because 20/30/40 years ago, borrowing long term to pay cash was hugely burdensome. Today's homebuyers will buy assets at prices which reflect low interest rates, and they will pay low interest rates on their loans. As young workers, they might actually be better off in the long run. In a long term regime of zero rates, more of society's wealth is going to producers (and risk-takers), less is going to people who just hoard cash. You might think it's nice for society to do something to correct this one-off inequality. Maybe so, but it's not fundamentally different to the other inequalities which exist. In particular, it's unclear why either artificially raising rates or artificially raising inflation are the solution. Neither of these are particularly effective in helping people who have got the short end of the stick. Both benefit some groups of rich people and some groups of poor people, and harm some other groups. There are much better solutions which can be pursued by governments directly without political interference in currencies. Of course the type of person (job, family status, education level) who could buy a house in Berlin or London in the 1990's could not buy that same house today. You can either say 'too bad, you were out competed', or you can try to do something about it: pay teachers and social workers more, build more houses, make smaller cities more desirable to live in, provide better training and career opportunities etc. Blaming this on the dubious idea that cash in the bank should accrue 8% interest per year lets governments off the hook for actually solving the problems, and just advocates a different set of inequalities and broken incentives.

throwaway-8c93 6y ago

> with the ECB insisting there's no inflation House prices are represented in the consumer price index as 'imputed rent', generally by far the highest weight item. Last time I checked, its weight was at 9%.

frafra 6y ago

You are right about the house prices in Germany, but your statement about ECB is not entirely correct. ECB does not "insist there is no inflation" in Germany or in Europe: in both cases it has been around 2 % for the last 20 years: https://portal.dataviz.ecb.europa.eu/views/HICP_dashboard_ETS_16049391112180/InflationDashboard https://portal.dataviz.ecb.europa.eu/views/HICP_dashboard_ET... There is a reason why the ECB estimation of inflation (HICP) seems lower than expected in your experience: it does not take into account owner-occupied housing (OOH) prices, which include O.1.1.1.1 (Purchases of new dwellings index). Mario Draghi (former resident of the ECB) was in favour of that, but the European Commission thinks that OOH is not suitable to be included in HICP yet. References: - https://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2018-768-F1-EN-MAIN-PART-1.PDF https://ec.europa.eu/transparency/regdoc/rep/1/2018/EN/COM-2... - https://www.ecb.europa.eu/pub/pdf/other/ecb.mepletter180615_Loones.en.pdf?c70e96e017400693be88594080334077 https://www.ecb.europa.eu/pub/pdf/other/ecb.mepletter180615_...

bjeds 6y ago
I may be tired or dumb, but your argument sounds circular to me. Of course the ECB won't insist there is no inflation if they themselves have defined housing to not be included in the definition they use to measure inflation. This doesn't mean that the parent commentator is wrong nor does it imply that ECB is correct in their definition. For most people, housing is a significant cost in day to day life, and will of course be felt as inflation, regardless of how it's defined and measured in monetary policy. If it were up to me, housing should also be included in the definition of inflation. That would be a good way to lay bare the downsides with an aggressively expanding monetary policy.
- frafra 6y ago
  It is not a circular argument to show that a statement is not correct: ECB never said there is no inflation in the first place. ~2% is not "no inflation"; 2% is the target that the ECB aims at. In addition to that, I added an explanation why such a number seems lower that you could expect. Please note that ECB does not define the HICP, the European Commission does it: https://ec.europa.eu/eurostat/web/hicp/faq https://ec.europa.eu/eurostat/web/hicp/faq

pizza234 6y ago

I'm very skeptical at the following claim, if taken at face value: > Germany house prices have about doubled in the last 10 years In the capital, prices 10 years ago were extremely low. People who bought apartments between 10 and 20 ago bought them as low as 1000€/sqm, which is exceptionally low for a European capital. Under such conditions, price doubling is expected independently of any policy.

martin_bech 6y ago
German housing is a litle different, as many prefer to rent, so less demand for beeing an owner.
- p1esk 6y ago
  Why do they prefer to rent?
  - allendoerfer 6y ago
    After WWII the German government created strict renter protection laws and the state invested heavily in relatively high quality public housing. You can compare the results to the UK, which cities were also bombed, but invested in private housing instead. Germany also famously had been "the sick man of Europe" before the current boom, were real wages did not rise for a long time.
- raxxorrax 6y ago
  True, if I have no chance to finance it, you prefer renting compared to homelessness. But workplace mobility, yeah!
Cthulhu_ 6y ago
10 years ago was the peak of the housing bubble collapse (or just after), so the price of houses was depressed for a while. That said, housing prices have gone up by ridiculous amounts since then, in part thanks to economic recovery, in part due to low mortgage interest rates, and in part (linked) due to low savings account rates. Better to put that money in real estate (and more risky investments on the stock market) than let it wither in a savings account. But hey, for a while a few people made a lot of money.

martin_bech 6y ago

You are right, houseprices in denmark are going crazy.. But makes sense since 0% fixed mortgages.. you can get a 30year fixed at 0.5% with the option of only paying the interest, for the first 10years

PartiallyTyped 6y ago

I am paying a 950 euro rent for a <24 sq meters in Copenhagen, not downtown Copenhagen, inc water/electricity/heat/washer/drier. The situation is absurd. Back home (still in Europe) I paid half for 35-40 sq meters. Yes, the salaries offset some of it, but still..

Cthulhu_ 6y ago
The salaries you're eligible for offset some of it, but there are a lot of people that have to get by on minimum wage in the big cities as well. Instead of making mortgages more attractive, I think governments should increase minimum wage. If they do a correction to match up with inflation (and cost of living, since the two don't seem to align), suddenly minimum wage will jump to €30/hour.
jacobion 6y ago
Why do low interest rates cause high rents? High house prices sure, but why does it affect rents? You prefer to live in Copenhagen than the part of Europe you come from, for the higher salaries among other reasons. Probably lots of other people share your preference. Doesn't this suffice to explain why rents are much higher in Copenhagen than in your home region?