Recently, we have witnessed a decline in house prices in the US and England. Some consider home prices that fall dangerous for a wider economic situation, and while this is true, there are also some benefits and reasons why good prices fall.
Benefits of Falling House Prices
Home prices will be more affordable. Recently, many buyers were first ‘given prices out of the market’. If the price goes down, it will allow more people to buy. This will help reduce inequality; Homeowners have advantages in retirement because they will pay off their mortgage and can avoid renting rentals.
Increased labor market flexibility. High housing prices make it difficult to move to certain areas. For example. London and Southeast have seen the shortcomings of important groups of workers such as health care workers, teachers and police. The lack of this labor market can damage the local economy.
Interest rates are likely to fall. Fall house prices tend to reduce inflationary pressures in the house builders London economy. Therefore, this will allow the central bank to cut interest rates. This will reduce the cost of payment of mortgages that will help homeowners.
Preventing speculation in the UK and US housing markets see an increase in the number of speculators who buy a house to make capital gains, this makes the market more fluctuating. The price of a falling house is an examination of reality that home prices do not always continue to increase faster than average income.
The problem of home prices falls.
Lower prices can cause lower economic growth. When house prices fallen consumers are abandoned with negative equity and cannot remortgage. The fall of the price also caused a decrease in economic confidence because the housing market was held by consumer opinions about economic / personal finance. If the price of the house drops quickly, Ceteris Paribus causes recession – unless other economic aspects are strong as increasing investment and export.
Prevent the construction of new homes. If the house price goes down, the house builder will pull back to the new home building. This can lead to short-term home shortages. In the short term it will cause work losses in the construction industry.
Home prices fall negative can cause negative equity. This is when the value of the house is worth less than a mortgage