:: How low will house prices go in 2009? ::

Reference: http://news.bbc.co.uk/2/hi/business/7727893.stm

Summary:
Recession started in the end of 2008 has continues to drag house prices down. Side effects such as laid-offs and abandoned building sites are becoming world-wide issues. According to professional predictions and statistics, house prices in 2009 are going to be the lowest in the record of these past few years. Looking at the market today, financial specialists said that making short-term predictions are useless. Due to unemployment, banks are not willing to take the risks of lending money to corporations during this recession period making it even more difficult to build houses. This resulted in mortgage clogs being the follow-up problems. Therefore, it is a big challenge to house prices that are trying to climb up the grid during these hard periods. The prediction for this year end (2009) would be 15-20% down fall.

Connections:
As mentioned in the first chapter of our textbook, amortization; delay recognition of fixed assets are distributed over fiscal periods. If the prices of houses continue to fall, that meant the value of houses do not worth as much and this could result in an increase in "write-off of fixed assets". Not only these, taxes also play an important role. Taxes are being charged on lands, and interests are charged by the banks at the same time. According to the characteristics of accounting information, conservatism is very important while recording fixed-assets-like information. Conservatism also will be affected because the land price could only be written down when the price is lower than what it was purchased at. As part of the financing activities purchasing properties and paying the expenses for them is necessary. But when the company is not earning from the investments then this would results in a net loss.

Reflection:
The recession has been causing many crises for the economy. One of them was the built-up of unused lands. These lands could not be sold because of the prices were low; however, keeping them would also cause trouble because they require high payment of rents. As their value decreases, the companies that owe them would also result in a loss of assets and hope. If this continues the banks would also face bankruptcy because they could not take the risks of lending money out. By earning interests, they would not be able to maintain their businesses. On the other hand, I think that if the house prices are low as this, they might come to a degree that they could become attractive to investors to buy at this time and sell them later when the economy recovers. Also, the coming Vancouver Olympics 2010 will attract more business people to buy lands and built houses in Vancouver. I learned that the house prices reflect economical ties to accounting concepts and this could change the way of recording information based on GAAP concepts.