Wednesday, September 03, 2008

What's wrong with falling house prices?

Politaholic is not an economist (a bit of a disadvantage for a politaholic) but here are some probably naive musings on the housing crisis: (i) Are falling house prices really such a bad thing? Can it really be reasonable to buy a house, which triples in value over a few years, and then walk off with a bundle of cash? (Of course, if you want to buy another house there is no real gain, unless you go down-market). Where does the money come from? If the "winners" are the guys whose houses triple in value, who are the "losers"? Can it really be sustainable for houses to keep going up in value like this? It seems not. (ii) If someone borrows five times their annual salary in order to buy a house in the expectation that it will triple in value, and then they find themselves struggling to meet the mortgage repayments, isn't that best described as greedy and stupid? Why should taxpayers money be used to help them out? Is it really the government's job to protect people against the consequences of their own greed? Is the government going to dole out money to those in rented accommodation?

I know, this all sounds a bit harsh. I'm not sure I mean it 100% (Not everyone in difficulty borrowed 5 times their salary or bought as an investment. I feel some sympathy for those who behaved reasonably prudently and now find themselves in difficulty; but not for those who borrowed-to-the-max in the expectation of a something-for-nothing bonanza). So if not 100%, I mean it something-per-cent.


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