While we are still in a recession, the recession seems to be getting less bad. As a Wall Street fund manager told me today, it might go down in history as “the great recession.” As we all know, this recession has pushed down housing prices around the world. It looks like the worst might be behind us.
In May, UK housing prices increased by 1.2%. Housing prices are an indicator that the economy may be recovering. Housing is a major piece of a very large economic puzzle. Along with factors such as employment, consumer spending, inflation, manufacturing inventories, and the stock market, housing is a key factor in looking at economic health in the United States and abroad.
Housing purchases are a major indicator, and that rate drives housing prices. When people were afraid of losing jobs and income, home purchases fell. As people are becoming more confident that their income will remain constant in the future. That means that they are willing to spend more on homes and other goods and services.
While I highly recommend you all keep on saving, it is best for the economy if people spend. Spending moves money into businesses that moves on to create profits and job opportunities. That leads to more spending. The cycle will continue to grow when consumers are confident.
How does this impact you? When the economy is bad, stock prices and home prices go down. Interest rates are also at historic lows. When the markets are depressed, it is a good time for you to make investments. If houses are at the bottom, it is a good time to buy a home (to live in or invest depending on your own financial situation). Remember the mantra: buy low, sell high.
Hopefully things will start to turn up. In the global economy, housing recovery in the United Kingdom may be tied closely to housing in the US and the rest of the developed world. What do you think will happen next? Is the worst behind us or are we just at a hump in a longer downturn?