I thought of this “chicken and egg” problem many times and came to the conclusion that low interest rates are quite a lot to blame. I mean we all agree that the government has been artificially lowering interest rates since at least 1987 to combat any little problem that crept up. When you keep interest rates low, a lot of things happen. People start borrowing and speculate, this drives up asset prices, thus rewards the risk takers. So people quit their jobs, stop producing, start borrowing more, start consuming, savers get punished, and in the end everyone ends up buying from abroad. This has lost us a lot of our long-term planning, our savings, and even our production potential. Now everyone focuses on the short-term, because it seems to work. When it stops working it will take a long time to unwind this whole process, so in my opinion there is nothing like: “Houses will just correct for a few percent, and then they will continue their uptrend”. Not until we do something serious about the whole thing.
