box of Jack

karan

The house thing applies nearly globally; Australia for one has had the widening gap all down to the (relatively) rapid drop in interest rates, and it is beginning to catch up.

The article confuses effect with cause – interest rates dropped, and as the price of credit (i.e. interest rate) globally fell to unseen levels, the banks could afford more risk for the same price. So what do you do when awash with funds? You lend to the “sub prime” market. It’s not that they loosened rules to lend, it’s that they had so much money they had to lend it to someone or just leave it sitting around (bad for returns).

The other point to make is that the article points out home ownership is at record levels, and yet is surprised prices have gone up. Land is a finite resource, and well-located land even more so. More demand for finite resource = higher price.

When the comparison is made to Japan, it ignores the fact that Japan was awash with money, and real-estate buying had become purely speculative. A boom which is sustained by real people buying for themselves doesn’t crash like the Japanese one. It also ignores the fact that Japan’s official interest rate is 0.25%, and most of the nineties it was in technical recession.

Storm in a bloody teacup.