Now, I thought we all agreed that in 2008, prices were too high, and there was a big bubble. What are we to think of even higher prices in 2014, when the economy has been staggering along on life support for six years?
I can tell a story about these cities in which they’re somehow special and the money will just keep rolling in. But I can also tell a story in which people are paying more than they should for houses in my neighborhood on the assumption that today’s $750,000 house will be tomorrow’s $1.5 million retirement fund, even though incomes in DC can’t really support an entire city’s worth of seven-figure homes. I might even tell a story where today’s ultra-low interest rates give several cities full of smart upper-middle-class professionals a badly contagious case of money illusion.
Low interest rates do seem to boost the prices of some assets.
Where are prices higher than 2008? Yes, lower interest rates do increase asset values, and as I said at the time, we would find the bubble to be less severe than indicated, as the bubble was about keeping interest rates higher than they had any right to be, so that when they fell prices would not fall all the way to what they were. Time moves on, population grows, inflation continues, and interest rates will only rise when prospects for real growth in incomes rise.
“Where are prices higher than 2008?”
Click on the source link?
“Low interest rates do seem to boost the prices of some assets.”
Yup, in particular assets that are primarily bought with credit and of a roughly fixed supply.