Are house price falls welcomed?

Recent research by the BBC has found that more people welcome falls in housing prices than they do increases. These results are very surprising as the general assumption was that an increase in prices was more welcome due to houses increasing in value. The study, which questioned 1,005 people, showed that 22% wanted house prices to rise compared to 28% who wanted them to fall (46% stated that they would prefer them to stay the same).
Price falls bring about economic benefits to both first-time buyers and current homeowners who want to sell their house and purchase something more expensive. Although their house will have depreciated in value, the value of the property they want to buy will have fallen even harder.
Some economists are worried that a serious fall in house prices will cause homeowners to be more cautious with their spending, possibly cutting down on some luxury items and causing the economy as a whole to suffer.
But what exactly does a fall in house prices have on the economy? Are consumers right to welcome them? Here are some points for homeowners to consider about the state of the economy.
• The effect on economic growth could be quite substantial. In 1991-92 house prices fell by 15% and this was one of the main causes of the 1991 recession. There are other factors that lead to a recession, of which falling house prices is just one, but housing is of great importance to the UK economy and its effect is great.
• People will find it easier to get on the property ladder. If prices are going down, then it is much more realistic for first-time buyers to purchase their first house. In the last decade, house prices have risen at a rate much faster than income and this has meant that first-time buyers have struggled to get on the property ladder. A fall in house prices will allow the price-to-income ratio to balance out somewhat.
• Trading-down is much more difficult. The people who lose-out when house prices fall are those who want to trade-down to a smaller and less expensive property. Because expensive house prices fall at a greater rate than less expensive ones, people who are looking to sell up and down-scale will find themselves with a lot less capital available for them to do that with.
Ultimately, the effect of a house-price fall depends on the extent of the fall. A lot of people confuse a decrease in growth with a decrease in prices, which is mistaken. So whereas house prices could be growing at a rate of 5% per year instead of 7% per year, this could be seen as a decrease in prices, whereas it is simply a decrease in the rate of growth. Such confusion could lead people to drastic measures such as if you decide to sell and rent back your home.

The author of this article would recommend the experts at Swift Capital if you decide to sell and rent back your home or even have issues if selling with a sitting tenant.

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The author of this article would recommend the experts at Swift Capital if you decide to sell and rent back your home or even have issues if selling with a sitting tenant.


Author Profile: david field

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