Fall in house prices? No problem.

May 14, 2008
Apparently all the gloomy predictions about house prices are of little consequence to the majority of us because we don’t actually mind if prices fall. 

A study, conducted by ICM on behalf of a BBC programme called ‘The Truth About Property’, discovered that just 22% of us wanted prices to go up – but 46% were happy for prices to stay exactly the same, and 28% actually wanted prices to fall.

Price falls are welcomed, not just by first-time buyers, but by any homeowner who wants to move to a larger or more valuable property.  The poll was conducted of 1,005 people canvassed over a three-day period from 25 to 27 April.

The supposition is that when prices go down, the rungs on the housing ladder get closer together, making it easier for people to climb up to the next rung.  Even if the price of our own home falls, the price of the next property comes down proportionately.  So we don’t have to borrow as much money to trade up.

To cut back or not to cut back?

The findings cast doubt on the assumption that falling house prices cause political and economic damage.  Economists are concerned that if prices fall too quickly it may knock consumer confidence, already at its lowest for 15 years, leading to reduced spending that could worsen the current economic slowdown.

But another finding questions whether it is house price falls that have damaged consumer confidence - as opposed to other factors such as food, fuel and mortgage payments.

Respondents were asked if a fall in house prices of more than 10% would make them more likely to cut back on household spending such as clothes, leisure and groceries.  More than 60% of people said it would either make no difference or would make them likely to spend more.  Only a minority - 38% - said it would make them more likely to cut back.

Nearly a third of homeowners have no mortgage on their homes - meaning no risk of negative equity.
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