Yes. Why? Because banks make money lending money. They have loosened their lending practices to such an extent that they have flooded the economy with money. Is a house worth X pounds? Yes, if someone will pay it. Someone will pay it if they can get ready access to X pounds. When the banks stop lending money so freely house prices will fall.caspian wrote:Is there an oversupply of money in the economy though? And if so, why?clv101 wrote:House prices go up when the money supply increases allowing people to pay more
As someone else said, it's complicated. Banks very often sell of the loan they have made to you and therefore are protected from your defaulting on it. This would make you wonder if the lending was loose because the banks don't fear the defaulting and the people who are buying the debit are doing so in such massively complicate CDOs that they don't have any sense of the real risk.
You could write a book on all this.
