Just like the booming US housing market, similar markets around the world are experiencing a rise. With low-interest rates, people are having an easier time becoming homeowners. Economists worry that the low cost of borrowing would lead to economic bubbles in the housing sector, and they are urging the government to intervene in order to prevent this from happening.
Property prices in Europe and Asia had been high before the pandemic, with years of low-interest rates that allow people to borrow easily. Now with the pandemic, many lawmakers want to keep the interest rate low to stimulate economic recovery, but, according to the Danish Central Bank, people might take up too much debt to purchase properties and drive property prices too high.
High property prices and high expectations in the housing market might lead to excessive risks for home purchasers in financing their purchases. Furthermore, it might add to the economic imbalance already caused by the pandemic. For example, in Seoul, property prices are up around 15 percent annually but with low-interest rates, and instead of spending on consumer goods that would recover the economy, many Koreans decided to postpone other purchases just to buy a house. Similar trends have been occurring in other countries. In the Netherlands, the cheapness of borrowing money has led to some people purchasing houses on that reason alone, as reported by the Wall Street Journal. However, this threatens to create an economic bubble by driving up the prices and putting the purchasers in a dangerous position for more debt in the future.
Central banks want to keep the interest low, but the swiftness of rising prices forces them to do something. What exact measure can be used to prevent such a bubble is still in debate, as a wrong move at the present delicate time could potentially result in an economic catastrophe.
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