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I'm a little confused. How would a crash in house prices cause a recession?

I can see and have seen house price crashes linked to recession but the recession has always casued the house prices to drop, not a drop in house prices causing a recession. At least that is how I have understood it.

Or is it that lots of BTLs will go bust if house prices drop and they are propping up the economy? :blink:

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I'm a little confused. How would a crash in house prices cause a recession?

I can see and have seen house price crashes linked to recession but the recession has always casued the house prices to drop, not a drop in house prices causing a recession. At least that is how I have understood it.

Or is it that lots of BTLs will go bust if house prices drop and they are propping up the economy? :blink:

This is the myth that is perpetrated by the general media. If you look at the timing of the last 3 recessions, they started AFTER house prices started to fall.

"The Economist" explains this quite well, and even Gordon Brown has been gracious enough to admit that it is the housing market that leads to recession, NOT the other way around.

One of the best international studies of how house-price busts can hurt economies has been done by the International Monetary Fund. Analysing house prices in 14 countries during 1970-2001, it identified 20 examples of “busts”, when real prices fell by almost 30% on average (the fall in nominal prices was smaller). All but one of those housing busts led to a recession, with GDP after three years falling to an average of 8% below its previous growth trend. America was the only country to avoid a boom and bust during that period. This time it looks likely to join the club.

http://www.economist.com/PrinterFriendly.c...tory_ID=4079027

Edited by BandWagon

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This is the myth that is perpetrated by the general media. If you look at the timing of the last 3 recessions, they started AFTER house prices started to fall.

"The Economist" explains this quite well, and even Gordon Brown has been gracious enough to admit that it is the housing market that leads to recession, NOT the other way around.

http://www.economist.com/PrinterFriendly.c...tory_ID=4079027

I don't think that a house price crash "causes" a recession, or indeed that a recession "causes" a house price crash in absolute terms. There *are* causal factors in both directions. But in a sense they are both symptoms of a particular stage in the economic cycle.

frugalista

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It’s the chicken & egg question. with the supply & demand rule:

uk-unemployment-large.png

You won’t be going house hunting, it’ll be job hunting.

Ok excellent.

Have a look at the graph below.

Can you see that house prices had started to fall at the end of 1988?

Very similar to where we are right now.

And can you see,from the graph above, that unemployment started to rise in 1990? That is normal, unemployment rises at the end of a boom.

This is starting to happen now.

The economy is cyclical. It goes through boom and bust.

We have had the boom, now we are going to have the bust.

Wake up, realise what is happening. If you have massive debt, especially on housing, get out.

Prepare youselves, there is going to be massive pains, and opportunites ahead for those prepared.

Recessions_and_the_housing_cycle.GIF

post-1529-1143243825.gif

Edited by BandWagon

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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