Since the Great Recession, the Fed has transformed itself into an entity more and more responsible for asset prices. This was the stated goal since 2009 as the Fed adopted a new philosophy called the "Wealth Effect." The thinking behind it was simple: growth in asset prices would translate to an increase in consumer spending and hence demand itself. It was a 'trickle down' economic philosophy an increasingly financialized economy.
This backdrop has defined our post-2009 era which stirred certain pathologies that were reflected in the greater culture and politics. It was the time when 'finance became a culture' and actual-productivity plummeted across most developed economies, especially the United States. But somehow in spite of the accumulating dysfunction across most key areas, everything kept trudging along, partly thanks to investors being satiated with record returns.
While the near-zero interest rate regime may now be ending, it is worth considering how much of the water we were all swimming in excused poor state capacity, distorted economic fundamentals, and how it even kept a lid on the dysfunction potentially blowing up in our faces. Now that we have to reckon with these realities, it may be wise to ask how many worldviews were simply products of the the cheap money regime - which is now, in a shock to many, coming to a close. Whether or not it will easily be let go, however, is another matter.
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Notes -
Why does that mean bubble?
People have not gotten more money, only access to more credit specifically for housing.
This creates a housing specific asset "bubble", where the properties haven't gotten better or more desirable and yet have greatly inflated in price relative to the rest of the economy and disconnected from material reality (construction cost and availability of land).
One could argue that it isn't a bubble in the sense that it can't really pop though. The people are stuck and there are no alternatives so even increasing interest rates can at most have an limited impact on prices (unless the central banks plan to break the economy).
Perhaps more accurate to say is that housing prices have rapidly increased, far outstripping any real growth in wages or productivity. This has a number of undesirable effects.
So buying power increased because a factor in the price of land - interest rates changed for real reasons. Not a bubble.
Granted almost every place doesn’t provide enough land for development which makes it the bottleneck asset and hence ability to pay (rates) tends to drive land prices.
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