Continued focus on house prices necessary for survival
Following the release of the latest Case Shiller indices in the USA – Colin Murphy, well known industry commentator and director of Torcana.com has called for a renewed focus on house price statistics and the links they have with consumer spending.
[USPRwire, Wed Jul 15 2009] The latest statistics showed that average prices continued to fall in April 2009: the ten city index was 0.7% lower the 20 city index was 0.6% lower than the previous month. “What's interesting to me” commented Murphy, “is that these are the lowest falls since June 2008. The case for those declaring the worst is over continues to gain momentum”.
Despite continued pessimism in some quarters of the market, the statistics point to similar turning points in the UK; with Nationwide reporting price rises of 0.9% in June and the Bank of England announcing four months in a row of rising mortgage approvals in May.
“While it is understandable that people might wish journalists and commentators would simply shut up for a while about the trends in the housing and mortgage markets and concentrate on more important things like reducing unemployment and improving healthcare” said Murphy, “the focus on the housing market needs to continue because it has direct links to many other industries and house prices directly affect consumer spending”.
Murphy contends that if people know their house is increasing in value, they will tend to spend more money (and vice versa). “In economic jargon, this is referred to as the Wealth Effect and it is very influential” he says and adds that “the economic policy models of the Federal Reserve assume that a person whose house appreciates by $100,000 will increase his spending by the same proportion as a person who receives an extra $100,000 in stocks, shares and regular income”.
Declining house prices also limit a banks willingness to lend money - not just for houses but also for cars, business start ups, holidays and general investment.
“Far too many people who should have known better lost sight of these forces” he finished.
Torcana Ltd is a property investment consultancy dealing with investments in foreclosed property, distressed property, and discounted property in USA, Spain, UK, and Panama. For more information please visit: - http://www.torcana.com