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It's the central banking system that is broken. Through quantitative easing central banks pushed down interest rates artificially low. Low bank interest pushed
by acd 4y ago
It's the central banking system that is broken. Through quantitative easing central banks pushed down interest rates artificially low. Low bank interest pushed up housing prices to the sky. Most home buyers look at the monthly interest payment expenses which determine house prices. Now that we have high inflation(partially created by quantitative easing) central banks will have to raise interest rates. The reason for higher central bank interest rates is an annual is two percent inflation target. High-interest rates will push housing prices down.
Its like Dr. Jekyll and Mr. Hyde. Central banks will have to fix the inflation monster that they partially created.
Another part is globalization was causing deflation pressure but central banks measure domestic inflation on a global wage market. Now that trend has partially changed due to protectionism.
- skybrian 4y agoLow interest rates are good for housing developers too, so the question is why it hasn't resulted in more new homes being built? Perhaps one reason is that they did build a lot of housing in 2008 and got burned? (At least, in less fashionable places.)
- slaw 4y agoCould you elaborate why low interest rates are good for housing developers?
- skybrian 4y agoThey borrow money to fund construction and don't earn income on it until much later, after leasing or selling completed properties. The higher the interest rate, the more it costs, and delays mean more interest paid while waiting.
- slaw 4y ago> central banks will have to raise interest rates Looks like central banks are not going to raise interest rates to even match inflation.