Why would this be "grim" news?

[MrKeane]

Indo:

At home, the news was equally grim on the housing front.
According to the Irish Auctioneers and Valuers Institute (IAVI), any house price increases in 2006 were wiped out by the downturn in the market over the past 12 months.

Why should this be classed as grim news? If the price of cars, oil, mobile phones, etc. etc. fell we would all be delighted. I have kids who someday will hopefully want to own a home and the cheaper houses are the better. Can somebody explain why this would be grim news for me, or my kids?

Please do not turn this into a discussion on house price in Ireland, I just want to be educated on why rising house prices should be so celebrated when we moan about the price of anything else rising.

 

[Sunny]

Simple answer is negative equity
It is good news for people trying to get on the property market but not so good for the thousands of people who took out 100% mortgages . You are unlikely to suffer negative equity if the price of your mobile phone drops!

 

[MrKeane]

Simple answer is negative equity
It is good news for people trying to get on the property market but not so good for the thousands of people who took out 100% mortgages . You are unlikely to suffer negative equity if the price of your mobile phone drops!

So its only grim news for people who bought in the last 18 months or so, a fraction of the housing stock in the country?

Hardly grim news in the grand scheme of things?

 

[demoivre]

Simple answer is negative equity
It is good news for people trying to get on the property market but not so good for the thousands of people who took out 100% mortgages . You are unlikely to suffer negative equity if the price of your mobile phone drops!

And you should qualify that imo by saying that negative equity doesn't matter a damn unless you want to trade up, nor does negative equity affect ones ability to repay ones mortgage.

 

[Sunny]

So its only grim news for people who bought in the last 18 months or so, a fraction of the housing stock in the country?

Hardly grim news in the grand scheme of things?

Yeah but falling housing prices mean weaker construction sector, weaker economic growth, higher unemployment, possible problems with banks etc etc etc. A property crash (not saying we are having one) is bad for everyone

 

[Sunny]

And you should qualify that imo by saying that negative equity doesn't matter a damn unless you want to trade up, nor does negative equity affect ones ability to repay ones mortgage.

You are right, I should.

 

[Purple]

It's also bad news in the short term for the economy as we have so many jobs directly and indirectly in the housing industry. It's bad news for the banks, banking stocks and share prices. Therefore it's bad news for pension funds.
In the long run it's probably good news for the economy as house building in not subject to international competition and so local demand have a huge inflationary effect. This feeds into general inflation in the economy and reduces competitiveness in much more productive areas of the economy such as internationally traded goods and services. When house prices go up so do insurance costs and this also feeds into general inflation. A reduction in house prices should at least reduce the rate in increase in inflation but it could take some time for it to wash through the economy and be seen. Indeed these positive effects may not be noticed at all in the context of increases in external inflationary pressures such as oil and interest rates.
If we could have had this decrease without a world wide downturn it would have been much better (obviously).

 

[Duke of Marmalade]

I think Roy, the answer to your conundrum is that a House lies somewhere between a consummable and an investment.

If a consummable like beer falls in price, that is good news (except maybe for brewers) and nobody bemoans the fact that we should have delayed the Christmas party to benefit from the reduced prices.

If shares fall in value, that is bad news, and only stockbrokers would have the nerve to promote the bright side as a buying opportunity.

House price falls combine all these features. Bad news definitely for those who got in recently and never benefitted from the rise. Bad news for those who looked to the wealth effect of the equity in their home to justify a more comfortable lifestyle. Good news for those who are yet to get on the ladder or are on the way up.

However, I think the reference to bad news really refers to the economic impact, which in Ireland is bad.