Housing Risk- (8.12.02)

The rational consumer is supposed to be able to assess economic risk in everyday life and the consumption, borrowing and saving decision that they make. So what does this mean for the risk of a crash in what is supposed to be an over-inflated housing market. The boom has lasted a while and the warnings from commentators are clear enough, but still consumers are willing to keep house price inflation going. Either consumers do not fear the risk, do not expect it to happen or do not believe they can avoid it.

The reality is probably that people do not change their behaviour for future events very often. This, allied with little choice for most people about whether to buy or not and mortgages even at inflated prices still cheaper than renting in the long term, means that the consumer is still behaving as rationally as possible.

The economic consumer also tends to have a short memory. Whilst interest rates are low the memory of the last house price crash has faded into the mists of time for most people. Most of the current consumers will not have even been mortgage holders in the early 1990s.