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Thursday, 16 April 2020


IN A NUTSHELL –

HOUSE-PRICE RISES ARE DRIVEN BY MORTGAGE AVAILABILITY

and very little else


Steve Keen, one of the very few economists who DID see the 2008 Great Financial Crash coming has posted the clear-cut evidence that it is Mortgage Lending that drives up house prices. Here's the graph for theUK followed by the explanation.
The impact of that increased debt for the household sector has been simply higher house prices. 

Putting it simply, most houses are bought primarily with mortgage debt, rather than out of income. 

So the monetary flow of demand for housing is primarily the flow of new mortgage debt. Divide this by the number of houses for sale, and you have a rough measure of the average demand price per house. 

Given how inflexible the supply of housing is, the change in this flow of demand is the primary determinant of the change in the house price level. 

So all this additional debt has done is simply drive up house prices by higher leverage.”



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