Falling home prices are usually reported with all the doom and gloom expected of a smallpox outbreak. Yes, lower prices do decrease the wealth of homeowners as they lose equity in their property. That decrease in wealth can take its toll on consumer confidence and spending, and even the creation of new businesses. However, there are definitely some positive benefits of falling home prices in the marketplace.
- Reduction in inflation: Falling home prices typically reduce inflationary pressure on the economy. This will keep prices in check for homes as well as consumer goods, autos, and even groceries.
- Lowered interest rates: As prices for homes fall, and inflation lowers, the MPC can consider reducing interest rates in an attempt to stir the economy. History has shown that lowering interest rates does get the market moving again.
- Homeowners can save by refinancing at lower rates: Lowered rates can help homeowners with equity to save on their mortgage payments by refinancing at the lowered interest rates.
- Increases in home sales: Falling home prices can make them more attractive to potential buyers. Who does not love a bargain, after all? Of course, increasing home sales will help stabilize the falling home prices as well. In states like California and New York while it’s true that the prices tend to be on the higher side compared to other states, if you consult with a California mortgage broker or one in New York, to give you an example, they can better help you find these bargains as they know more about the real estate in their own areas.
- First time buyers will qualify more easily: Many of those shopping for their first home will be better able to afford a property with falling prices. Where they may not have qualified for a mortgage in the past, they may now. The percentage a bank is willing to lend takes into account the applicant’s income, which is generally less for younger borrowers.
- Renters may buy homes: In addition to first time buyers, renters might move to buy a home as prices come down, making homeownership more attractive than renting to them.
- More people will qualify for mortgage loans: As prices and interest rates are lowered, many more people will be able to purchase a home. Lenders use a potential borrower’s debt to income ratios and a mortgage affordability calculator to figure out how much a borrower can afford to pay back. With lowered rates, a borrower will be able to afford a higher priced home. If you want to see how much you can afford, check out this mortgage calculator for details.
More affordable housing helps public sector staffing: When housing is not affordable in certain areas, the effect is to cause shortages of teachers, nurses and police officers in those areas, which in turn makes the local economy worse. Some areas have even turned to immigration to fill those jobs, which is not an ideal situation.
Falling house price points are definitely not all negative, as you can see. In fact, it just might stir up the economy and help many people own homes that had given up on that dream. Currently, the banks are in a position where they are now returning to lending levels that are similar to those that pre-date the global financial crash of 2008. The opportunities available to those who are in the house market are currently at their greatest abundance for 8 years. Are we going to see first time buyers taking advantage of this?