Are falling house prices really a tragedy?

Higher interest rates are making borrowing less affordable, so the average buyer has less to spend on a new property. Halifax found that the house price reduction has already begun, with a 0.1 per cent drop last month. Falling house prices can be a harbinger of economic doom – this kind of decline usually signals the imminent start of a recession.

Many will treat lower house prices as a tragedy. Oxford Economics has described the current predicament as ‘the most worrying housing market outlook’ since just before the 2008 financial crash. Homeowners will see their wealth shrink, at least on paper. Recent buyers with loans larger than the value of their property could end up in negative equity.

But let’s look at this with some perspective. Oxford Economics is forecasting house price falls of around 13 per cent across next year and the year after, taking the price of average properties to levels not seen since… March last year.