What happens when house prices fall:
Conventional wisdom suggests that falling house prices would be a disaster for homeowners and the economy. For example, a 10% fall in house prices could knock £20,000 of the average UK house price. Such a fall in wealth is likely to reduce consumer confidence and spending. This fall in spending will feed through into lower growth and possibly cause a recession. Many homeowners remember the last recession of 1992 when house prices fell by 15%
However, falling house prices are not necessarily the end of the world (as maybe the Daily Mail would like us to believe :))
- Firstly the recession of 1991 was really caused by interest rates of 15%, rather than falling house prices.
- Falling house prices enable lower interest rates, this is good news for those who have stretched mortgage spending
- Falling house prices will help address the issue of affordability. Many first time buyers struggle to get on property ladder creating divisions within society.
- Falling house prices do not necessarily cause a recession.