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Factors that influence the price of houses

Extracts from this essay...

Introduction

Contents 1. Introduction Pg 3 2. How houses are affected by demand and supply Pg 4 3. Inflation Pg 8 4. Consumer Confidence Pg 9 5. Affordability Pg 10 6. Interest Rates Pg 11 7. Average Property Prices in the UK Pg 12 8. Size and Type of Properties Pg 13 9. Economic Growth Pg 14 10. Conclusion Pg 15 Introduction The question that is to be investigated in this project is 'What factors determine the price of houses?' I have made a hypothesis from this question that I will later prove or disprove in my investigation. My hypothesis is: House prices are mainly determined by mortgage rates. To collect my information I will use a wide range of resources. These will be: · The Internet, particularly specialised sites dealing in economics (e.g. www.bized.ac.uk,). Also property sites that give information on houses. · I will try to use as much of my class work as possible. I will need to look at my notes on Demand and Supply. Also advice and encouragement will also be gained from parents if needed as they have some experience in the house market. A major resource in this investigation will be looking at the determinants of demand and supply, which will help us when investigating the factors that affect the demand and supply of houses. How House prices are affected by Demand and Supply This is the one of the main factors to be considered in this investigation. This project will be greatly influenced by supply and demand and below the laws of supply and demand will be explained and examined to see how it operates with regard to house prices. * The law of demand states that as the price of a product increases, the demand for that product decreases and as the price decreases, the demand for the product increases. This is an inverse relationship.

Middle

This is up 0.6 on the same period last year, though the ratio remains well below the record peak of 5 times average earnings. "The UK housing market has been very strong in 2002 but house price growth has gradually eased over the last three months", said Gary Styles, Halifax's chief economist. UK house prices rose by 0.2% in August, compared to steeper monthly rises of 1.8% in July and 2.4% in June. Consumer Confidence The article below explains how UK's consumer confidence is falling and the UK housing market is starting to decline. House price confidence 'slipping' Confidence in the UK housing market is "starting to decline" according to the Woolwich bank. The latest snapshot of the mortgage market by the bank, found confidence had fallen for the second month in a row. But while confidence fell, the Woolwich found that the demand for home loans continued to grow strongly. The latest figures from the UK's fourth biggest lender, showed gross mortgage lending grew by 17% last month to £20bn. However, Mr Gray says that there are signs that confidence amongst home buyers is subsiding: "We have seen a clear indication that people's confidence in the housing market is starting to decline." Last month, saw the first fall in home buyer confidence since November 2001. In July, this trend continued with 59% of those surveyed saying that they felt the market would expand, a fall from 61% in June. However, in the two-areas of the country that have experienced the greatest rise in house prices over the last year - East Anglia and the South West - buyers are still bullish about prices. Nearly three quarters of buyers in the South West and two thirds in East Anglia believe that prices will rise strongly in future. Mr Gray said lower confidence would dampen demand and house price growth would be moderate over the coming months.

Conclusion

However, this had no great bearing on house prices immediately as people had low confidence in a seemingly volatile house market. The following table shows about how in recent years the economic growth has affected the house prices. YEAR Boom / Recovery / Recession / Slowdown Effect on demand for houses? 1979 - 1982 Recession Low / decrease 1982 - 1986/7 Recovery / reasonable growth Increasing 1987 - 1990 Boom Rapid increase 1990 - 1992 Recession Very low / decrease 1992 - 1995/6 Recovery Still low (low consumer confidence) Conclusion Through looking at my information above and all of my notes I would be accurate in saying that my hypothesis was wrong. As with all things, demand drives up prices. So, the fewer properties on the market coupled with a growing demand for homes will increase demand and buyers start to outbid each other. Also, every one wants to live in the best districts of our towns and cities - so these will always be in demand, without the demand for a product, the product would not be built. As long as there are people living there will always be a demand for accommodation of some sort. From the project we have learnt many things about today's economy in the UK. It is shown that consumers do not think about the far future and organise their financial duties on a short-term future basis. This is because consumers can lose confidence very easily and as their income is not getting any higher they become scared and save more instead of spending. This project also helps us to understand that properties in the UK are very important investments and there are many factors to take into account when choosing the right home. Recent news stories show that house prices are increasing because of the high demand for these houses. The articles above show that houses are selling at their fastest and the supply of houses has also increased because of this. 08/05/2007 House Prices Project - 1 -

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