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Booming house prices spell more trouble for the social contract

STOCKMARKETS HAVE not had a good September, but their strength for the year as a whole remains a source of wonderment. Less noticed has been the equally remarkable buoyancy of another asset class: housing. Many rich countries are seeing house prices surge even as their rate of infections is rising for a second time. In the second quarter, although economies were under lockdown, house prices rose in eight out of ten high- and middle-income countries. According to unofficial series—which are timelier though less accurate than government data—America’s house prices are up 5% on a year ago. Germany’s are 11% higher. Britain’s hit an all-time high, in nominal terms, in August. The boom shares some causes with the strength of stockmarkets, but reveals more about the pandemic’s effect on economies. It is also more consequential.

Like stocks, house prices are being supported by loose monetary policy. In the past year the rate at which Americans can obtain 30-year fixed-rate mortgages has fallen by roughly a quarter, to about 2.9%. As well as making monthly mortgage payments more affordable, low rates make houses more attractive, because they depress the returns on alternative safe investments. Other economic policies are also helping. Mass government support for household incomes, as well as mortgage-repayment holidays, have saved jobless...

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