few more arguments about interest rates direction

[RawAlex]

Serge, you are correct. Japan is a perfect example of a system where interest rates have been so low for so long that their "fed" can no longer use that level to make things go... and nobody wants to be the one to push them up (for fear of even more recession...).

Keep going down, and you run out of room to go... the US rates are getting VERY close to that level (as are the rates in Canada, I should mention).

Vick: Low rates create new home buyers, and in the long run create wealth for everyone. However, when the rates do go up, there is a correction in the value of homes when those rates start to move people back out of the market. Right now there are way more buyers than sellers, which drives the new construction market. If the rates go back up over 7 or 8%, the reverse tends to happen, and the resale prices tend to drip as sellers have to work to find buyers. Right now I could put my home on the market today and have a buyer by Friday, with a very nice gain in value in the two years I have been here. In a couple of years from now, with higher interest rates, I might have a harder time to find a buyer for the same property, so I might not make the same return in the next two years that I have made in the last two years.

The housing market, because of the large values involved, tend to drive the economy strongly. Construction jobs pay reasonably well, and they tend to make things go. But like any situation with a false subsidy, once that subsidy is removed, the market changes dramatically. I haven't looked, but I suspect the economy (with housing removed) in the US and Canada hasn't been all that good the last couple of years.

Alex