Road to recovery starts with rising house prices

HAMISH_MCTAVISH

It would be common sense, were house prices to start rising again, for people to relax a bit and become a little less keen on paying off debt. Were that to happen, that would give a sizeable boost to consumption – something like 2 per cent a year.

Pull all this together and what should we expect? This recovery has been disappointing in every respect bar one: employment growth. A number of things need to come together to lift us from what is at best slow growth into something more solid – the virtuous circle where real incomes are rising, companies are more confident about investing, and consumers more confident about spending.

That virtuous circle is vital, as both the Coalition and the Opposition are very well aware, if the Government is to sustain its deficit-cutting programme.

We have rising employment; we should soon have rising real incomes.

If we also get modestly rising house prices, then the worst really will be over.

But it is a big “if”.

http://www.independent.co.uk/voices/comment/youll-know-that-were-on-the-road-to-recovery-when-house-prices-start-rising-and-were-not-there-yet-8194635.html

Obvious really.

Generali

My feeling is that this is a 'does smoking cause cancer or does cancer cause smoking' question.

I think that when people feel secure in their jobs and incomes they are happier to take on a bit of extra debt to outbid the next person. In that case good economy causes rising house prices not the other way round.

The exception would be places like Ireland and the USA where people have negative equity in their homes. That causes solvency problems to the banking industry, creates solvency risks to homeowners and stops people moving to take a better job.

Emy1501

Mewing to fund lifestyles and IO mortgages are a thing of the past now. People are paying down debt now as lenders are forcing them to.

Also with more and more being unable to afford a house higher housing costs will affect the ability of the young to spend.

Only makes sense if we are talking about rises below wage inflation.

Graham_Devon

You've started the quote mid paragraph Hamish, for obvious reasons.

The first half of the paragraph states consumption was supported by withdrawals of equity from peoples homes.

That's hardly something to try and re-create.

The third candidate is rising house prices. During the boom years, people supported their consumption by withdrawing equity from their homes. Since 2007, the reverse has happened and people have been paying down their mortgages, cutting consumption to do so. [Hamish starts quoting] It would be common sense, were house prices to start rising again, for people to relax a bit and become a little less keen on paying off debt. Were that to happen, that would give a sizeable boost to consumption – something like 2 per cent a year.

Houses should not, and can not, infact, provide a limitless source of funds to fund consumption.

DervProf

HAMISH_MCTAVISH wrote: »

http://www.independent.co.uk/voices/comment/youll-know-that-were-on-the-road-to-recovery-when-house-prices-start-rising-and-were-not-there-yet-8194635.html

Obvious really.

In a global economy, you want your working population's wages to enable your economy to be able to compete in the global marketplace. Higher housing costs will either mean higher wage requirements, or a lower standard of living for a large percentage of the population.

Having your cake and eating it is hard, or impossible to achieve in the long term. Yes, in the short term (2001 - '07) you can have you cake, a bit of someone else's and eat it. Eventually you get fat and have to go on a diet.

thescouselander

On the other hand if housing costs were to be significantly reduced through lower prices people could spend their hard earned cash in the economy instead of tieing it up in unproductive housing stock. The advantage of this is that less money would need to be borrowed and therefore less money would leave the economy through interest payments to foreign creditors.

chewmylegoff

I don't think there is anything wrong with the premise, the trouble is that the HPI that would "normally" happened now was brought forward to 1997-2007 by lending practices during that period, and you can't really have it twice- things are just catching up now.

It's called boom and bust.

abaxas

The road to your mental health recovery starts with accepting the market will decide house prices.

shortchanged_2

HPI is fine Hamish as long as it's from a sensible starting point and as long as it is at sensible levels. Unfortunately house prices are still out of kilter (just for you McTavish) with earnings so they still need to correct for the long term good.

Graham_Devon

Well that was easy. We shall await the next installment with baited breath!

moneyinmypocket

Yes I have always said there is no recovery without rising house prices -