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Three ways in which housing market affects consumption levels

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Introduction

Three ways in which housing market affects consumption levels Housing is a very strong component of wealth for typical household because many people's biggest asset is their house. It is believed that on average a 33% of overall wealth for a family comes from their house/houses. Houses are obviously very essential for living in and in the UK at least 95% of people own houses, however many people would not take into consideration that the price of their house will affect their consumption level and therefore overlook the fact that a house is more than just a building. One major way in which housing markets affect consumption is between house prices and consumption (wealth affect). ...read more.

Middle

the house prices will have fallen because of a recession or something similar along the lines of that and therefore peoples job security will diminish as they may be scared of losing their job. Another factor is inflation, which is a general increase in prices so a high inflation means high prices. This can be perceived in two ways: Firstly, expectations of increase in inflation will tend to bring forward their purchasing and thus increase consumption. They know that if they bought an expensive car or a flat now that in a month's time it will be worth more and so they will be wealthier and will want to consume more. ...read more.

Conclusion

An increase in interest rates will mean that once a loan is taken out, you will have to pay more money on these goods and so like inflation virtually means that the price of goods increase. Therefore households will lose confidence and cut their consumption. Interest rates also affects the mortgage and so increase interest rates means high mortgage repayments, and so directly cuts spending which discourages house owners from borrowing money and again reduces consumption. In my opinion the main housing market factor affecting consumption levels is the value of the house, because higher house prices means higher customer confidence and in turn means more consumption. It directly relates to consumption. ?? ?? ?? ?? Raju Mahajan ...read more.

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