Negative Rates Could Trigger Another Housing Bubble

From top to bottom of the ladder, greed is aroused without knowing where to find ultimate foothold. Nothing can calm it since its goal is far beyond all it can attain. Reality seems valueless by comparison with the dreams of fevered imaginations; reality is therefore abandoned. – Emile Durkheim

Sweden is already in the mature stages of experiencing a housing crisis. Take a look at the chart below. Home prices are surging simply because it is cheap to borrow money. The lower the interest payments, the more you can borrow. Hence, individuals throw caution to the wind and start chasing property because they believe prices will continue trending upwards. What they forget is that no market can trend upward forever. 

More and more nations are embracing negative rates so as rates move into negative territory it will have the unintended consequence of fueling another housing bubble, and suddenly property that appeared to be out of reach could be within reach, only because the monthly payment seems affordable. Eventually, the U.S is going to lower lending standards and when they do, expect the housing market to explode as there is a lot of pent-up demand. The public has been shut out of the markets for a long time, and when you give someone freedom after locking them up for a lengthy period, they go insane, and that is what lies in store for the housing market.  The Fed has laid the path out, and this was planned years in advance.  Take a look at the Swedish housing market as depicted in the chart below. The Chart for the US and UK housing markets will look 5 to 10 times worse.

The map below illustrates that the war on interest rate is gathering momentum:

Source: The Telegraph

Additional dangers of negative rates

As more nations embrace the era of negative rates, no nation is going will be in a position to resist. The slogan will be “surrender or die” and nations will opt for surrender as no one wants to die. Negative rates will also fuel a massive new round of share buybacks. The Fed is trying to put on a brave act, but you can already see them backtracking from the strong stance they took last year. Now they are stating that all is not well, and the economic outlook is weaker than expected. They will have no option but to join the rat pack; in this instance, resistance is futile.