Brief thought

[andrewducker]

I wonder if falling house prices are bad for the economy in a way I haven't heard mentioned - because they put people off from moving somewhere for a new job, because they can't sell their property without losing money.

Free-flowing workers are good for an economy, surely having the better-off ones stuck in one place must be bad for it.

Comments

[danieldwilliam.livejournal.com]

There seems to be an acute issue in the US where 25% of households are in some form of negative equity (so I’ve been told). It’s not just that the nominal value of the asset has fallen and selling it locks in cash loses. The problem is that being sellable for less than the outstanding financing the asset can not be sold. This coupled with the increasing numbers of households with two incomes mean that labour mobility is reduced. This I think is made worse because negative equity is probably more common in depressed areas of the country.

This in turn is starving growing areas of the economy.

Consequently (at least in part) the US economy is not growing at rapidly as it usually does after a recession.

I’m not sure how this phenomenon affects the UK. Less so I think as we are smaller and therefore it’s easier to have a house in one part of the country and work somewhere else.