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What if Prices Decline?

Posted by Velyana Goranova on January 15, 2019
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Would a market correction be a bad thing? Many seem to think not. A recent YouGov poll reveals that 60% of those who took part feel that a 30% decline in property prices would be a positive for our country. Those who voted positive are largely concerned about the growing division between average earning and average house prices.  In the UK the average portion of earnings we spend on a purchase has increased from 2.4% in 2016 to 7.8% in 2018, according to the Office for National Statistics.

 

Referring to the recent YouGov survey, one Brexit expert agreed that “if one claims to want a better future for our youngsters, one might actually want prices to fall”. But if we believe that prices are dictated by a supply and demand ratio and there is currently a lack of supply, we should question what would lead to the decline in prices?

 

According to financial experts the reality is quite different from the picture painted in the media. If house prices were to decline, it would most likely be as a result of reduced affordability. Meaning prices would decline as the economy overall was crashing, salaries and employment opportunities would decline and therefore house would become unaffordable and as a result prices would decline. So not the rosy picture some are painting of lower prices and improved affordability for first time buyers.

 

Ryan Bourne writing from City AM stated: “What matters is not whether prices are rising or falling, but whether the cause of that change makes us better or worse off. If an economist is faced with no information beyond evidence of a falling price, they cannot say if this is good or bad news.”

 

With political uncertainty looming we simply need to take the doomsday predictions with a pinch of salt and continue business as normal.

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