Construction
The Royal Institution of Chartered Surveyors (RICS) announced today that they had changed their forecast on house prices for 2009, and that instead of a fall they now foresee a small increase. This raises an obvious question: if they were wrong then, why are they right now? If an organisation with the resources and networks of the RICS can be so wrong about house prices six months ago, how do we know they – or anyone else – are right now?

But, more fundamentally, why should we believe that the problem with housing markets is that prices are falling? Prices are dropping for a very good reason – housing had got too expensive, beyond what many people could afford – and markets are now making the necessary corrections. Instead of worrying about house price falls, and hoping for a return to inflation, we should rather trust that the market will continue to correct the distortions of the last few years and so we will continue to see house prices falling. If we want affordable housing in the UK, this is the only practical way of achieving it, even if it might not suit the property professionals.

2 thoughts on “What’s wrong with falling house prices?”

  1. Posted 06/08/2009 at 10:53 | Permalink

    To ask “what is the ‘right’ price for a house?” is rather like asking “what is the ‘right’ number of pages for a book?”

    I suspect one reason why the media prefers rising prices to falling prices, whether for houses or anything else (the stock market, for example)is that the media tends to look at the economic world from the point of view of producers (rather than consumers).

    If it were not so, why would there always be a political danger of pressures for protectionism?

  2. Posted 06/08/2009 at 10:53 | Permalink

    To ask “what is the ‘right’ price for a house?” is rather like asking “what is the ‘right’ number of pages for a book?”

    I suspect one reason why the media prefers rising prices to falling prices, whether for houses or anything else (the stock market, for example)is that the media tends to look at the economic world from the point of view of producers (rather than consumers).

    If it were not so, why would there always be a political danger of pressures for protectionism?

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