Prices Rising Too Fast in Other Countries?
Home prices in many parts of the U.S. are still on the road to recovery, but in other parts of the world, prices are rising so fast that some officials are worried about potential housing bubbles.
In China, home prices rose by 11.7 percent from March 2009 to March 2010. In Canada, the Canadian Real Estate Associates says home prices rose 17.6 percent during the same period. And in Australia’s eight state capitals, prices rose 20 percent between the first quarter of 2009 and the first quarter of 2010.
Some economists are looking at this phenomenon and considering ways to take the air out of the balloon.
Many of them are applauding the suggestions offered by Olivier Jeanne, a professor of economics at Johns Hopkins University and Anton Korinek, an assistant professor of economics at of the University of Maryland, who urge a tax that would discourage large amounts of debt.
The thinking is that when people borrow money, they end up paying more for a house and inflating values. This “financial accelerator” also works in reverse when the market is in a downswing, making problems worse.
Source: The Economist (05/08/2010)