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Washington Post
Hong Kong home values have jumped more than 80 percent since the start of 2009.

Fed helps fuel global mortgage bubble

– Jean Liu’s plan to buy a Hong Kong apartment was derailed by the 2008 global financial crisis. It was an opportunity lost as prices surged instead of dropping as they did in many of the world’s property markets, leaving the 32-year-old corporate banker still searching for an affordable home four years later.

“I originally set my budget at HK$3 million,” or $390,000, Liu said by telephone. “Now that’s barely enough for a down payment.”

Liu’s plight is shared by homebuyers as far away as Canada, Switzerland and Norway as a flood of money supplied by central banks globally to prop up the financial system finds its way into markets regarded as havens from economic turmoil and Europe’s sovereign-debt crisis, pushing down borrowing costs and driving up home values.

The Federal Reserve has held interest rates near zero since 2008 to stimulate the world’s largest economy, forcing faster growing economies such as Hong Kong to adopt a loose monetary policy that fuels inflation.

“The Fed’s trying to save the day, yet it’s creating a lot of distortions both at home and internationally,” Mickey Levy, chief economist at Bank of America in New York, said by phone.

“The Fed is understating the magnitude of these distortions,” such as rising real estate prices and low bond yields, he said.

Investors in search of higher returns are moving into appreciating real estate markets benefiting from strong economies and stable governments not burdened by high levels of debt.

In Canada, where government bond yields last week fell to the lowest level since 1950, home prices have climbed 34 percent since January 2009 to an average of $362,204, according to the Canadian Real Estate Association.

Switzerland is as close to a housing bubble as it’s been in two decades, according to data compiled by UBS. Norwegian homeowners, who’ve seen property prices surge almost 30 percent since 2008, may face higher mortgage payments before the end of the year as the country’s central bank seeks to deflate a property bubble amid expectations that household debt will surpass 200 percent of disposable incomes next year.

Hong Kong’s combination of record-low borrowing costs and a shrinking supply of new buildings caused home values to jump more than 80 percent since the start of 2009, according to the Centa-City Leading Index. In the 12 months through March, prices gained 5.4 percent, more than any other Asian market apart from India, broker Knight Frank LLP estimates.