Real estate slump
The housing market has received a great deal of publicity in recent years, and much of it has been bad news. Since the outbreak of the credit crisis, the number of home sales has dropped sharply, as has the number of newly built properties. Average house prices have come down by about 10% since August 2008. This is an unfavourable development for homeowners who see their wealth decrease, for banks because the mortgage collateral has depreciated, and for the financial system because initially, its vulnerabilities have grown.
Key role for first-time buyers
On the positive side, lower house prices mean that households looking for a home are enabled to buy better value for their money. The average house price is currently similar to what it was in early 2006 (Figure 1). At the same time, disposable household incomes are higher while mortgage rates are low. However, consumers currently approach the housing market with far greater caution. The propensity to buy a home is exceptionally low. Homeowners prefer to sell their current home before they start looking for a new one. Housing market recovery starts with households buying their first home. It is the first-time buyers that may set the sales chain in motion again. Once the current owner of a market-entry property sells their home, they will start looking for another, in many cases higher-priced property. The same applies to the new home’s current owner, et cetera: thus one home sold to a first-time buyer may spark off a chain reaction of property sales.