Denmark offers homeowners 20-year loans at a fixed interest rate of zero

Earlier discussion from yesterday: <a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=25647652" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=25647652</a>

House prices are driven upwards due to low interest rates, so this move will most likely only exacerbate the already high house prices.<p>I&#x27;m not sure about Denmark, but in Germany house prices have about doubled in the last 10 years, (with the ECB insisting there&#x27;s no inflation).<p>Given the choice between high interest rates and cheaper house prices, versus low interest rates and expensive houses, I&#x27;d rather take the former, since rates can always come down again, allowing you to refinance and pay less for your house overall.<p>When (in the current environment) rates start going up again (they&#x27;re basically at the lower bound now), house prices will fall, however home &quot;owners&quot; (with mortgages) won&#x27;t pay less for their houses because their mortgages are fixed (and if they weren&#x27;t fixed, they&#x27;d be doubly screwed by the high rates).

This is not truly a 0% loan.<p>Because of the fees, you will pay a minimum of 0,74%.<p>Also because these mortgage instruments are traded at a price less than 100, you have to take out a loan larger than the amount of money that will be payed out. For example, to loan $100 you might have to take out a loan where you start out owing $105, which further increases the actual interest.

I&#x27;m very far from an economist. But in school I learned banks loan out &quot;your money&quot; to companies, for which they receive interest, which they also use to pay you interest.<p>So when loaning money requires 0% of interest payments, and saving money pays out 0% of interest...that seems wrong?

Credit growth expands the money supply and stimulates economic growth so long as that expansion is ever increasing (park what that means practically). This mechanism of credit growth linked to some asset has been the largest driver of economic growth in the western world for decades. For the UK, where I live, the growth in household debt &#x2F; gdp has been steadily increasing since the late 80s and I&#x27;d be surprised if its much different for other developed nations <a href="https:&#x2F;&#x2F;www.theglobaleconomy.com&#x2F;United-Kingdom&#x2F;household_debt_gdp&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.theglobaleconomy.com&#x2F;United-Kingdom&#x2F;household_de...</a><p>Countries that have come to rely upon their property markets for economic&#x2F;political ends are likely going to come up with ever more elaborate schemes to maintain the above mechanism (UK, Australia, Canada and Denmark spring to mind). Indeed the unhealthy focus on the property market in the UK is a sign of the disconnect between real economic activity and asset inflation. Rationally this is an absurd mechanism for economic growth as it causes large divisions within society but its difficult to see these countries reverse course and what is more likely to happen is growth in private debt levels will level off and overall economic growth will stagnate similar to what Japan has experienced now for 3 (going on 4) decades.

Can you say &#x27;housing inflation&#x27;?<p>All this does is introduce more monetary demand for housing, increases prices, and stretches out credit putting further distance between those with no homes, and those with the biggest.<p>Housing may be one of the largest drivers in personal wealth in our era - the more you can afford for a down payment and payments, the greater your financial leverage over those with less leverage.<p>And of course, renters are left in the lurch with higher prices.<p>A smarter plan might be to limit the term lengths of mortgages to 15 years, and to frankly <i>increase</i> (and stabilize) interest rates on homes. If interventions are what you want to do ...<p>FYI money will come out of regular consumption and get plowed into real-estate, which is mostly a non productive asset.

This is nuts. Housing inflation is rampant, I live in Sweden and my house value increased 40% in 5 years. We currently pay less per month for our 250 m2 house than my parents pay for their 75 m2 rental apartment.

Yeah, but I bet they make it up on volume.

So, the stock market gives amazing returns, but debt is free? We must have absolutely massive asset price inflation, even if we have no consumer price inflation. I wonder if central banks are looking at the right metrics.