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Housing Market: from boom to bust.

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Introduction

Housing Market: from boom to bust. For the past seven years housing market was growing very rapidly. This increase caused the rise of rent equilibrium, and a price increase. Thus over the past 12 months, house prices in Britain have increased by about 30 percent. London market is certainly over-valued. This also could be a result of rising building and land costs. Therefore demand for property became lower, and banks were trying to maintain the housing market stability by offering low interest rates on borrowing partly driven by competition. The almost stable low inflation rate allowed them to do so. Consequently, a lot of homeowners were willing to sell property at higher price, thus the supply has gone up but less people could afford to buy. So increase in house prices draw the buyers in and encouraged owners to increase debts. ...read more.

Middle

Moreover, Sir Brian Pitman, the Master of the Guild of International Bankers, suggested that inflation rate is not going to rise dramatically, and with high employment level and quite stable interest rates house prices will remain unchanged. Thus, the consumer property debt should be covered soon. My personal point of view is that there would be a further downturn in housing market, but very slow. According to the Labour Force Survey( 2002) unemployment is rising, government financing are rapidly deteriorating, inflation is going up, as a result interest rates might increase, consumer property debt has reached the highest levels, which has influence on consumer spending and government depends on it very much. Inflation disrupts investment in housing market in particular and therefore affects the overall performance of the economy. Also this can lead to a further rise in unemployment as demand for houses will fall; less estate agents, builders etc. ...read more.

Conclusion

This should not be allowed. And as housing market is the Achilles hell of the UK economy, government should control the inflation rate and try to keep it down by managing aggregate demand for property. Thus they can control investments. And as debt ratio is strongly dependent on income, while income is not normally distributed nowadays, then the UK governments might consider redistributing of income in order to control inflation and decrease borrowing. Also it is suggested that there should be more affordable property and if not than government should invest more in housing market. Some economists and financial advisors predict the growth of the market by 3 percent at the end of 2003, but others say that it can not be possible without firstly income redistributing and secondly, without rising the level of economic activity, which is not that easy. To conclude, almost all homeowners think in short terms, however, government should be concerned with long term perspectives and try to maintain the long term position of the market. . ...read more.

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