Decreasing house prices surely create no shortage of newspaper headlines. Although a number of these headlines may seem unnecessarily catastrophic, falling house prices are not really the end of the world. Actually, falling house prices can be advantageous to some people.

Who Benefits from Falling House prices?

First time buyers. Currently the ratio of house prices to incomes is very high, as much as 5 times salary. Falling house prices allow for increased affordability. Additionally, rising salaries and pricing can cause real house prices fall more than nominal. Those who are a first time buyers wait with their purchase so the prices can become more affordable.

People who want to buy bigger houses. If the price of your house is falling in value, then it will also be less expensive to buy other houses. If you want to move to a more expensive house, this will actually make it less expensive.

What Will Happen To Interest Rates?

Another beneficial thing about falling house prices is that the cost of mortgages won’t rise. If anything dropping house prices should encourage the MPC to cut interest rates. This is due to lower house prices that will allow for lower growth and lower inflation.

How Much will house prices fall?

Currently, the most important factor of falling house prices is the problem with getting a mortgage. It is the reduced amount of mortgage approvals due to the credit crisis that is squeezing housing demand. If this is overcome, then prices may fall less than some people expect. Interest rates are rather low, supply remains constrained and many people would like to get a mortgage. Those who wait hoping for house prices to fall 30%, may never have the opportunity to purchase a house.