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The Economics of Housing. Factors affecting prices and demand.

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Introduction

INTRODUCTION: House and land are one of the basic needs which always have demand to the people. Population increased, so the demand is getting high for land and house. So it is obvious that the price will increase for increasing demand. And that is what was happening in most part of the world and same as UK. A House price in UK is one of the most popular topics for conversation. The purpose of house prices in local and national housing market is a typical example of microeconomics. Determine the price of a property in the market, both the buyer and seller offered and agreed before their final transaction. So there is a price from seller and buyer both. Buyers offer a price for the property that seller may accept or reject. Demand and supply are two main factors that changes house prices, so the factors that effect to change demand and supply are very important. The aims and objective that I need to discuss in this assignment are: 1. To give the definition of demand and supply. 2. To conduct a time series analysis showing the house prices in the last five years. 3. To identify the background factors behind changes of housing prices. 4. To make an analysis of the housing price scenario. The theory of demand: The theory of demand is a simple illustration of the general relationship between demand and price. It means when the price of a good increases, the quantity demanded will fall. ...read more.

Middle

Income/Economic growth 2) Interest rates 3) Availability of mortgage finance 4) Demographics 5) Customer confidence 6) Speculation 7) The price of rented accommodation 8) Low unemployment 9) Location Q Q1 Quantity A graph show at a price of P, a quantity of Q0 was originally demanded. But now after the increase in demand Q1 is demanded. After year 2008 credit crunch affects the housing market, which resulting the decrease in demand of buying property. The various reasons why house price decrease are: 1) Shortage of mortgage finance 2) The ratio of house prices to income has risen then any other time 3) House price become unaffordable for first time buyers 4) Speculation 5) Prediction for house prices These factors Shift the demand curve to left because of decrease in demand from people to buy property. The following graph shows the shift of demand curve: Q2 Q0 Quantity Some brief discussion of some factors: Income: The increasing income is a factor to changes the house price. When the income of people increases they want to spend the extra money for buying houses. So there is more demand for houses to buy. Also the reason for demand is living standard rise. So it makes the demand curve to shift right. And if the economy goes down and more unemployment people then the demand of house prices also fall. In 2003 in UK average income of a household was �34,197and average house price was �115,181. So the ratio of house price to income was 3.36.So it was easy for the people to buy houses and it increases the demand of house. ...read more.

Conclusion

In UK credit crunch have done serious problem for northern rock. They have a high % of loans which is finance through reselling the capital market. As a result they have to ask for urgent funds from bank of England. These things affect customer's savings. This credit crunch could last long. But a country likes UK it might stay one to three year. After that the house price will hopefully start rising. Normally in UK there is too much demand but very little supply of house. So anytime the credit crunch will remove from market, prices normally starts increase. Possibility is within two years. So it might be a good business for the long term investors. Now people are expecting that housing market will remain in fall for coming 2 to 3 years. Only possibility is in East London area that, the prices will rise due to Olympics games. Conclusion: Assuming from the whole study it is very hard to say about the pricing market of house in UK. Last five years the price was increase consistently. But this year credit crunch makes it weaker. But if the government get rid of it they should stop the lenders to make the housing market more easy like before, which make the market increasing price not necessarily. As house is always demandable and population increases, there will be a increasing in price normally after the credit crunch period. It would be wrong to completely rule out the possibility of a house price crash. It would be completely wrong to think that price will only crash. From the study and evidence it is for sure that the price may increase at any time. ...read more.

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