If property prices raise too quickly, it can price people out of the market, cause mortgage stress and financial hardship and create a property bubble.

If property prices fall too quickly, it can be devastating to the economy as property investors have investments worth less than their loan.

So ideally, does the government want property prices to go up or to go down and at what rate?

  • $\begingroup$ Property prices rising faster than general prices but slower than incomes would probably be popular, making existing property owners feel richer and future property owners feel affordability was increasing. $\endgroup$ – Henry Aug 31 '16 at 23:21

I can't speak for the rate at which you should set your prices.

However, borrowing some knowledge for my class of monetary economics, I would say pricesetting has a lot to do with expectations.

Just like in the exchange market, when people expect prices to rise a certain self-fulfilling prophecy occurs which raises prices. Why is that? When people expect prices to rise it gives them time to adjust themselves to the rise in prices.

For instance: Let's suppose that the dollar is at 1,5dollars/€ For some reason people expect the exchange rate is going to rise. when I say rise I mean an exchange rate of for instance 1$/€ . Eventhough when the number becomes smaller because you need to spend more dollars to get the same quantity of euros.

People expect the exchange rate to rise. Well some people are scared of the price rise so they anticipate that by buying the euros at the current low price. This in turn raises the demand for euros and therefore raises its price. This is the self-fulfilling prophecy mechanism I was talking about.

I realise I haven't answered your questions completely. But I hope it helped you to know that even if you do you at which rate you should set the prices, it is still important to factor in the expectations of the population, however difficult that can be.

  • 3
    $\begingroup$ There is an error in the numeric example of this answer. And the answer itself does not seem to have anything to do with the housing market. $\endgroup$ – Giskard Jul 25 '16 at 16:24

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