Debt plays biggest part in market recovery, says economist

Posted: 11 Mar 2009 12:18:11 GMT

The strength of the housing market hinges more on the ratio of consumer debt-to-income than simply the price of property, it has been suggested.

John Greenwood, chief economist at Invesco, said in a speech that the current recession is a result of a high debt-to-income ratio and a desire to sell assets.

As such, he suggested, this economic downturn is therefore untypical of previous recessions.

Although house prices are falling at present, Mr Greenwood said, purchases will not rise significantly until consumers' debt-to-income level drops.

Explaining his view on the marketplace, Mr Greenwood said: "In the current situation, house prices, commodity and import prices are all reacting to the same downward forces.

"Consequently until debt-to income ratios stabilise it will be hard to argue that declines in commodity prices are a net benefit to consumers rather than merely a symptom of the on-going debt deflation."



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