sandorski sandorski:
KorbenDeck KorbenDeck:
I still do not understand how rising housing prices is a good thing. Doesn't that just mean inflation (which is bad) is alive and well?
It shows increasing Demand.
It means a bit more than that (in some countries it's lead a lack of supply more than demand, although I'm not sure about the situation in Canada -- from what I've read however, house prices are still rising as actual sells are stagnating, so I'm betting it's the same here). Housing prices are considered by some to be more important because of what they cause -- improved confidence, boosting spending and hopefully speeding along economic recovery. It also helps improve bank equity, as their balance sheets have negative equity from home repossession, so improving home prices means banks are more likely to return to status quo lending and borrowing rates. In general, a lot of news networks like using them because they feel housing prices show the general direction of the economic recovery and the rate at which it is proceeding, and banks, for the positives they gain from rising prices of housing, are also optimistic when they see housing prices go up.
The problem though, is that in a long of places houses are still overvalued. I'm sure this is true for some areas in Canada, tends to increase wealth inequality (for those of you interested in that, as such interest seems to be periodical). Plus, too many changes with the interest rate can imbalance any gains we make. If there's a strong rise in interest rates or the supply of housing moves in the wrong direction, house values will drop once more.
Myself, I follow the belief that those massively overvalued homes and ever rising house prices were demand driven and one of the problems which caused the mess we were in, and which many nations are going to have a tough time crawling out of. Too many people expected for their homes to continue to be worth more and more as time went on, instead of stopping and thinking that housing prices can't continue to outrun the rise in inflation forever. There would come a time when continued borrowing on those inflated prices and the eventual price of owning a home of that size would collapse. However, this is fairly common as to what most people think could be attributed to a chunk of the economic downturn.
In this case, I would hope that the problem is more supply driven. Having too many people taking on debt beyond their means, which is the general pattern from before when first time buyers enter the housing market, makes me nervous, so having less people buying less homes at these higher prices would make me a bit happier. Generally, newer people into the market buy cheaper houses, and from what I understand from this and related articles, those which are generally in the new buyer’s market at around 200,000 dollars or less are declining rapidly in availability. I’m more concerned that people will lose confidence when they see soaring house prices since it will be reminiscent of what I said in the last paragraph – the wide spread belief of what happened during the last downturn in regards to a housing bubble. Given news of expected mortgage rate increases in the future, I feel that this will be a short term rise at the most at the current rates – I’m personally hoping that the prices will plateau soon in real cost (nominal is changed by inflation). I have a feeling that will do more to bring people’s confidence back than rising house prices, since another bubble seems to be a central concern for a lot of folks if any of the statistics have shown a trend. At the very least, I would hope that would assuage the debt issue which is creeping up on Canadians. In that, I would agree with Warne in this article.
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