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Economic Theory Driving the Current House Price Fluctuations in Hull

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Introduction

Economic Theory Driving the Current House Price Fluctuations in Hull By N.Whiteley The author conducted an investigation on the fluctuating house prices of Hull from the period 2000 - 03. Summary The report highlights why house prices in Hull have fluctuated during this period, the principal areas being economic business cycles, microeconomics, inelasticity of the housing market, mortgage and interest rates, inflation and the 'buy-to-let' phenomenon. Introduction It was identified that demand for housing is affected by economics, aspirations, and demographic changes in addition, consumer choices, such as cost, location, proximity to local amenities, employment, schools, size and type. The economy tends to move in a series of ups and downs, these vicissitudes are known as business cycles. Of course, markets are complex things and the housing market is one of the most complex. One major inelasticity is that individual people do not simply want a home somewhere in England; they want one at or near a specific location such as their work, or their family. ...read more.

Middle

However, it is hard to see what impact new builds have had in stabilising escalating prices, Kate Baker reports; "New supply nationally only accounts for 1% of the housing stock, and so even measures which change new supply significantly would not have much effect on prices were it not for the role of expectations." The Effect of Interest Rates One of the key determinants of demand for houses is the low interest rate because most people finance the buying of a house by borrowing money. Because interest payments are so large a part of mortgage payments, variations in interest rates exert a substantial effect for the demand for housing. Of course, the interest rate is not the only determinant of demand for houses. Another important factor will be the level of income that people have. The faster the level of income people earn is growing the more money they have to invest in their houses. Given theses changes individuals now have more income available to spend on housing. ...read more.

Conclusion

Investors making speculative investments in towns are creating high prices. Conclusion Hull's housing in many respects is in decline; however, evidence from this report suggests that the fluctuations in prices have been created by consumer demand. The demand has been fuelled by low interest rates, low inflation and the buy-to-let phenomenon. Supporting evidence from the Baker Review suggests that new builds have little impact in stabilising prices, which is clearly demonstrated in Hull. High property prices make homeowners feel richer and encourages equity-withdrawal, with many people speculating in the property market which in-turn fuels the property boom. Appendix All Existing Housing Stock Period Year Index % Change Standard Price Q1 2000 248.7 3.3 57,415 Q2 2000 239.9 -3.5 55,960 Q3 2000 242.6 1.1 56,020 Q4 2000 242.4 -0.1 55,975 Q1 2001 241.4 -0.4 55,742 Q2 2001 251.1 4 57,989 Q3 2001 260.5 3.7 60,155 Q4 2001 270.3 3.7 62,408 Q1 2002 280.7 3.9 64,814 Q2 2002 289.6 3.2 66,871 Q3 2002 308.9 6.7 71,330 Q4 2002 339.8 10 78,459 Q1 2003 359.4 5.8 82,997 Q2 2003 384.9 7.1 88,873 Q3 2003 409.7 6.5 94,613 Q4 2003 426.2 4 98,419 N.Whiteley 0300900 1 ...read more.

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