Household Wealth Drops – Will it Ever Recover?
Household Wealth Drops – Will it Ever Recover?
UK’s families are worse off by 17 per cent after twelve months of sliding house prices and the collapse of the stock market.This fall is the highest for at least 40 years.
On average each household’s wealth has fallen 45,000 pounds because the both the values of their homes and investments in shares, savings and pensions have crashed during the start of the recession. This is equivalent to 20,000 pounds for each individual.
During the last decade household wealth doubled before the recession took hold. So the current downturn has severely dented consumer confidence and the so called “wealth affect” – the confidence people have in their spending power resulting from their perception of what their assets are worth. This plunge in confidence is having a clear affect on retail spending and investment. In fact during last year, the FTSE 100 Index fell by 31 per cent and in the first two months of this current year the Index fell a further 15 per cent slashing value from people’s investment portfolios and pension funds.
Meanwhile savers have been afflicted by falling interest rates as the Bank of England’s base rate fell from 5 per cent in October to 0.5 per cent by early Spring the following year. This has been particularly disastrous for pensioners.
And we all know about what has happened in the property market. Prices have fallen 17.8 per cent in the last 12 months and in January only 56,000 house changed hands compared with 144,000 in the same month two years before. And only 9,000 first time buyers entered the housing market in January – the lowest level for 35 years.
But worse may be yet around the corner for homeowners. Bankers have warned that property prices could yet fall by another 55 per cent before prices bottom out.
Until the banking sector has got it’s house in order and lending confidence returns, property prices will undoubtedly languish. Recovery will not arrive until the bank’s self imposed credit restrictions are relaxed and the housing market gets the funding it needs to recover. The only good news at that time, will be that houses will far more affordable for first time buyers and for those that have accumulated enough for a deposit, home ownership will beckon.
At that time, the Bank of England will have to carefully steer the housing market. With years of frustrated pent up demand, if mortgage funding is fully released we could see prices spiral upwards like a demented rocket. That would not be in the nation’s interests. When it comes, we need a mild steady recovery in property prices otherwise before we know it, we could be back to the mess we were in 2 years ago (and, some would argue, are still in now!)
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