A real estate crisis is possible even if interest rates remain very low

The downturn in real estate prices from 2007 triggered a spike in US household defaults on mortgage loans and the subprime crisis. But interest rates are now increasingly low relative to the growth rate, and they are not expected to rise and trigger a downturn in real estate prices in OECD countries . Real estate prices are therefore going to continue to rise, leading to concern that there could be another type of real estate crisis that is not due to a rise in interest rates . Indeed, if the fact that long-term interest rates are significantly lower than the growth rate in OECD countries causes real estate prices to continue to rise, then at some point the level of real estate prices is going to be so high that despite the very low interest rates, demand for housing and commercial real estate will fall, sending real estate prices tumbling and triggering a borrower solvency crisis. Even if they remain very low, interest rates can still end up leading to a real estate crisis.