Low interest rates are not simply an American phenomenon – they are a global one. A growing body of evidence suggests that these low interest rates are beginning to fuel housing bubbles – the types of bubbles that created so many issues beginning about a decade ago. For instance, in Canada’s hottest real estate market, Vancouver, the benchmark home price recently rose by thirty two percent over a recent twelve month period.
As reported in the Wall Street Journal, the typical detached home there now costs about one point two million U.S. dollars. In Toronto, home prices are up about sixteen percent over the past year. In both Sydney and Melbourne, Australia, home prices are up by more than eleven percent over the past year. They are up by about sixteen percent in Stockholm, Sweden.
Housing bubbles can inflict economic damage in a number of ways, including by pulling investment capital into construction and away from other economic segments. Artificially high home prices can also induce people to take on more debt by making them feel wealthier. When prices adjust lower as the bubble bursts, people are left with a considerable amount of debt and lack the wealth necessary to support it.
