Real Estate Reference Why a House Price Crash is GOOD for your Wealth!
Saturday 16 February
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  by Peter Parsons

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  Hard as you may find it to believe, there are actually very good reasons why the current world-wide collapse in house prices is probably beneficial to your own personal financial health. First, let's take a look at some history, so we are all singing from the same songbook. The current house price boom has been happening for some time now, and over the last 6 years or so, in most parts of the world the cost of houses has skyrocketed. Some countries, such as the UK, have seen a trebling in the asking prices of houses, leading to a situation where first time buyers have effectively been priced out of the market in almost all areas. The reasons for this are many and varied, and the subject of intense debate, although the smart money is on a general loosening of credit partly caused by the Japanese printing money. They did this to the tune of almost 1% of the global GDP in an attempt to try and escape from chronic deflation. The short term effect of this was to prop up the ailing US Dollar. The longer term effect was to massively increase the availability of cheap credit worldwide as the de facto 'fiat' global monetary system leveraged those Yen into enough cash to stop the entire world economy sliding into a post-millenium recession.

This economic growth, of course, comes at a price. The previous 5 or 6 years of boom have been financed by the compliant home-owning consumer happily re-mortgaging regularly, and using the cash so released from their rapidly appreciating homes to purchase goods and services that would otherwise have been regarded as expensive luxuries. At some point, that cash would need to be repaid, and the gamble was that the boom would continue long enough so that rising salaries and general inflation would reduce the cost of this borrowing to manageable levels.
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