THAT WAS THE WEEK THAT WAS: 14 - 15 JUNE 2008
From top share author MALCOLM STACEY
Hello Crazy Folk,
House prices are falling. There seems to be a lot of hair- tearing among economists who say this will hurt the UK economy, like a brick falling on a head.
But this doesn't entirely accord with my understanding of the way house prices work. True, house builders and estate agents may suffer.
So may people who make cement and bricks and wheel barrows. But others will benefit from a slow down in house sales. These include do-it-yourself stores, as people forget about moving and buy stuff to improve what they've got.
People may decide not to buy a new house this year, but add an extension, or a new bathroom instead. They may even spend some of the money they were going to invest in bricks and mortar on buying a new car.
And falling house prices has to be good news for first-time buyers. Yes, they may have a bit more difficulty getting a mortgage, but they certainly won't have to borrow as much or pay back such big sums every month.
The house crash will lead to many couples paying less for their homes, so giving them a little more cash to spend in the shops.
And another good thing about falling property prices is that it can mean a boost in share prices in a totally different way - especially regarding the smaller company.
What happens is that private investors stop putting all their available cash into houses to rent, because their chances of getting the price of the house back, by selling later on, have now begun to diminish.
So what is all the fuss about? We've had 12 years of rising house prices. It was getting ridiculous. In fact it was ridiculous. And now a bit of sense has returned to the market. Isn't that a healthy thing? Wasn't the crash long overdue? Won't a house crash lead to rising share prices?
I just ask the questions, I'm sure some 'experts' will say I'm wrong. But am I? We'll see. God bless.
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