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It makes little sense that low interest rates get credit for fueling the current housing bubble, but higher interest rates are somehow ineffective at curbing it
by patrick451 3y ago
It makes little sense that low interest rates get credit for fueling the current housing bubble, but higher interest rates are somehow ineffective at curbing it.
- UncleEntity 3y agoOne could say that people still need a place to live regardless of the interest rate. If average people can't afford the interest rates my parents were paying back in the '70s and the people who can afford these rates -- because they can get a reasonable ROI through something like AirBnB -- are still buying up the supply of 'excess' homes then it could be argued that the Fed's meddling is ineffective.
- patrick451 3y agoSo your contention is that ZIRP had zero impact on the run up in prices over the last few years?
- UncleEntity 3y agoNot at all, the Fed's meddling could easily be blamed for that too.
- mitthrowaway2 3y agoIt stands to reason, then, that a low interest rate now would potentially drive an even bigger bubble in the future. A high interest rate now might not solve housing affordability today, but it could perhaps stabilize things farther down the road.
- MattPalmer1086 3y agoHouse prices are sticky on the way down. It also takes quite a few years for interest rises to really affect them. Volume of market may shrink as it is unaffordable but unless there are a lot of forced sales, home owners will just stay put.
- stephen_g 3y agoNo, I think there is pretty strong evidence putting rates too low certainly does create asset bubbles (housing, equities etc.), true. Raising them will rein that in. But I don’t see any firm evidence of a causal relationship in dropping rates to stimulate the general economy and raising them to control general cost inflation (as they claim they are attempting to do when they are doing either one).