Importance Of Negative Equity

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RELATIONSHIP AND RELEVANCE OF RESEARCH Negative equity can be referred to as situation where the outstanding balance on a housing mortgage is higher than the house (market) price. A situation as this leaves the household on a low or negative net asset wealth which could have a serious consequence at the micro and macro level of the economy. Negative equity as a concept impacts only a limited proportion of the aggregate household and the number of households in this context only rises when house prices fall the most due to shocks, economic crisis and other uncontrollable factors. In recent times, the economic crisis of 2008 has had the most devastating effect on the markets for housing and as a whole caused the incidence of low or negative housing…show more content…
The impact on monetary policy stems from the fact that aggregate demand is weakened during the period of negative housing equity and there is fixity in supply of housing in the short run. This weakened aggregate demand is a combination of weakened individual demand which resulted from the credit constraint placed on households and home buyers. Banks cannot give credit facilities to household falling in that category and expenditure is affected and this leads to a further contraction in money supply thus affecting the monetary policy of the…show more content…
They would be faced with the issue of writing down mortgage values from their books and also losing on their investment in securities that are tied to housing (real estates) which in another way could have serious consequence on monetary policy as well as evident in most financial crisis that has ever graced the economies of our world. The euro area has been besieged with situations of economic crisis, austerity measures and stock market crash and this has had serious consequence for the housing valuation and investment, financial stability and monetary policy. It is in the light of this that I find a very important reason to study the impact of negative equity (housing wealth) on consumption and savings through either the marginal propensity to consume or marginal propensity to save. In addition, comparison will be made with the conventional and recent research to know if the findings of this research work are in tandem or not. RELATIONSHIP BETWEEN NEGATIVE (HOUSING) EQUITY AND

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