Price increases: will they pose a threat to the broader economy?

With house prices leaping by 25% in the past year, economists are split on what this means for the future of the wider economy – will it be as damaging as we are told it will be?

Yes:

The increase in housing prices started from an already high point, which relative to incomes stood at 40% above the historical average. According to some economists, it is not the house prices that pose a direct threat to the economy, rather the household debt (which stands at 30 percentage points above late-1980s levels) – both of which are inevitably linked. This means that as prices rise, the amount of accumulated debt will increase and will pose a threat to banks and the overall economy.

No:

On the other hand, some economists argue that the reason for the increase in prices is due to low interest rates and a surge in confidence. Therefore the emergence of a bubble, followed by built up debt seems unlikely. With increased powers given to the Bank of England to prevent debt accumulation, such as stricter mortgage regulations, the boom won’t develop into a dangerous crisis.

Share this postEmail this to someoneShare on FacebookTweet about this on TwitterShare on LinkedInPrint this pageShare on Google+

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>