The Cause of Decline in Average House Prices

Potential home buyers have watched the average house prices dropping quickly over the past few years. The price of homes has been dropping fairly steadily since the global economic downturn that occurred around 2008. This economic disaster began in the United States where inflated housing prices caused a market bubble that burst causing the market to crash. This had a ripple effect that was felt around the entire world. Major banks looked to governments to bail them out for the risky decisions they had made and many governments chose to bail them out with the argument that they were too big to fail.

The average house prices in the UK and Europe have also been dropping at an alarming rate. This has caused many homeowners to become what is known as underwater in their mortgage and loan payments. This occurs when the value of the house is lower than what is owed by the purchaser. Many homeowners are choosing to walk away from these underwater loans. This practice is known as strategic default. While many argue that this is unethical, others see it as the only solution to their financial troubles. The more people that choose to do this, the more acceptable the practice becomes and the less trouble it will cause in procuring future loans.

In order to turn current economic conditions around to a more positive scenario, the housing troubles need to be addressed by governments of the world. There is currently a glut of foreclosed upon homes in many countries. This drives the prices of houses down even further causing a cycle of depression in housing costs. While these lower prices are appealing to many consumers, they are in no hurry to purchase a home when the prices keep dropping. In addition, it can be difficult to get credit in order to purchase a home under the current conditions. This is because banks have tightened their lending practices after losing in their gambles with all of those bundled mortgage loans that quickly became toxic.

This scenario also serves to limit the number of new homes that are being built. Until the glut of old homes is eliminated, people will not be looking to construct new homes. This has caused construction to lag and all of the other aspects of the economy that rely on construction such as those involved in building materials and their suppliers. The lack of new home construction, the difficulty in obtaining credit and the ever increasing number of foreclosures make this an economic problem with no end in sight. In fact, many economists are predicting that the world economy will not recover from this last recession and that people will have to get used to a new normal of lesser economic conditions.

All over the globe it is a buyer’s market when it comes to housing. Many people are trying to unload homes that they can no longer afford. This has caused the average house prices to steeply decline and the construction of new homes to falter.