Why Do House Prices Matter Outside Of The Property Market?
Whilst they are most important to homeowners looking to trade up the property ladder as well as first-time buyers, house prices are important to people in the wider economy for several reasons.
Naturally, Hackney estate agents are interested in the fact that house prices have risen by two per cent over the past 12 months because that can incentivise some homeowners to consider selling and make some buyers quickly buy into a competitive market or warily hedge their bets.
Most local estate agents also keep track of the wider property market to see prevailing trends or compare their region to see if they are faring better or worse than other areas.
However, house prices are often important to people and institutions outside of the property market itself, and house prices are widely reported in the news for reasons that go beyond the interests of homeowners, landlords and people looking to buy.
Part of it is due to an economic phenomenon known as the “wealth effect”, which theorises that people will spend based not only on how much money they have but how much the assets they own are worth, such as stocks, bonds and property.
The more they are worth, the richer people feel and thus the more they will feel confident enough to spend even if in practice they earn roughly the same as they did before.
In broad strokes, this is true, although there are certain questions about whether this is directly related to property prices or other factors such as job security allowing people to take greater financial risks without losing everything.
However, when house prices fall, households often cut back on spending, especially if that cut is sufficient enough to create negative equity, a situation where someone owes more on a home than its worth and typically will struggle to remortgage or sell it on.