Saturday, January 24, 2009
What a refreshing change
Three principal factors influence the short-term direction of house prices: the supply of mortgages, the level of employment and market confidence. A quick examination of each factor suggests that we are still a long way off the bottom. Falling house prices are now firmly entrenched in homebuyers' psyche, increasing the chances of a destructive downward spiral. When prices are falling, there is an incentive for buyers to delay purchasing. This resulting fall in demand forces vendors who need a sale to cut prices further, but this only encourages buyers to delay further, and so the cycle continues. Nobody ever rings a bell at the bottom of the market, but it seems a safe bet that buyers are not going to be in a worse position in six months to a year's time.