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The UK Housing Market Is it actually working?

The UK Housing Market Is it actually working?. UK house price inflation (annual percentage rates, adjusted quarterly). Source: based on Halifax House Price Index (HBOS). UK house price inflation (annual percentage rates, adjusted quarterly).

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The UK Housing Market Is it actually working?

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  1. The UK Housing Market Is it actually working?

  2. UK house price inflation(annual percentage rates, adjusted quarterly) Source: based on Halifax House Price Index (HBOS)

  3. UK house price inflation(annual percentage rates, adjusted quarterly) Source: based on Halifax House Price Index (HBOS)

  4. UK house price inflation(annual percentage rates, adjusted quarterly) Source: based on Halifax House Price Index (HBOS)

  5. UK house price inflation(annual percentage rates, adjusted quarterly) Source: based on Halifax House Price Index (HBOS)

  6. Who benefit from rising house prices? • The losers • The first-time buyer • Those upscaling • The gainers • Downsizers • Elderly going into homes • Emigrants • Those largely unaffected • Those not moving • Those moving to another areawhere house prices are similar

  7. Causes of rising house prices • Equilibrium in the housing market • Where supply of houses equals demand • Many different segments of the market • Price changes caused by shifts in D and/or S • D and/or S P • D and/or S P • Problem of inelasticity of supply

  8. Supply curves with different price elasticity of supply S2 P2 P1 D1 Q1 Q2 P S1 P0 D0 Q0 O Q

  9. Causes of rising house prices • Equilibrium in the housing market • Where supply of houses equals demand • Many different segments of the market • Price changes caused by shifts in D and/or S • D and/or S P • D and/or S P • Problem of inelasticity of supply • Some lags in price adjustment • Especially when markets are turning • Currently there is a glut of properties, especially flats, because sellers are reluctant to reduce prices

  10. Causes of rising house prices • Shifts in demand: short-term causes • Incomes • Current and expected • Interest rates • Current and expected

  11. Halifax variable mortgage rate

  12. Causes of rising house prices • Shifts in demand: short-term causes • Incomes • Current and expected • Interest rates • Current and expected • Availability of mortgages • Credit rating of applicants • Multiple of income

  13. £000s Ratio of average house prices to average earnings Source: based on Halifax House Price Index (HBOS)

  14. £000s Ratio of average house prices to average earnings Source: based on Halifax House Price Index (HBOS)

  15. £000s Ratio of average house prices to average earnings Source: based on Halifax House Price Index (HBOS)

  16. £000s Ratio of average house prices to average earnings Source: based on Halifax House Price Index (HBOS)

  17. Causes of rising house prices • Shifts in demand: short-term causes • Incomes • Current and expected • Interest rates • Current and expected • Availability of mortgages • Credit rating of applicants • Multiple of income • Rents (rental property is a substitute good) • Taxation: stamp duty • Speculation about future house prices

  18. Speculation compounding a price rise b P2 D2 P Assume an initial rise in demand S1 People believe that the rise in price to P2 signifies a trend. a P1 D1 O Q

  19. Speculation compounding a price rise S2 c P3 D3 P S1 The effects of these shifts is a price rise to P3 The rise in price to P2 is compounded by speculation Sellers hold back, waiting for prices to rise. Buyers rush to buy now before prices rise any further. b P2 a P1 D2 D1 O Q

  20. Mortgage Advances for Buy-to-let Properties

  21. Causes of rising house prices • Shifts in demand: long-term causes • Population growth • Population distribution • Family size • Regional trends • Income distribution

  22. Causes of rising house prices • Shifts in supply: short-term causes • Speculation • Rents (letting property isa substitute) • Shifts in supply: long-term causes • House building • Costs • Availability of land • Planning regulations

  23. What will happen to House Prices? Is there going to be a crash?

  24. What will happen to house prices? • Short-term: probably fall • Credit crunch • Buy-to-let is now much less profitable • In many cases rents do not cover the mortgage interest • Renting is now relatively more affordable • Speculation • Interest rates: actual and expected • Problem of inflation • Flats fall more than houses

  25. Inflation rates for (a) flats and(b) semi-detached houses (b) (a) Source: based on Halifax House Price Index (HBOS)

  26. What will happen to house prices? • Short-term: probably fall • Credit crunch • Buy-to-let is now much less profitable • Renting is now relatively more affordable • Speculation • Interest rates: actual and expected • Flats fall more than houses • North fall more than the south

  27. Quarterly inflation rates for(a) the northand(b) the south east (a) (b) Source: based on Halifax House Price Index (HBOS)

  28. What will happen to house prices? • Short-term: probably fall • Credit crunch • Buy-to-let is now much less profitable • Renting is now relatively more affordable • Speculation • Interest rates: actual and expected • Flats fall more than houses • North fall more than the south • Long-term: probably rise • Demand will probably outstrip supply

  29. What can the government do? • Demand • Making house ownership more affordable • Tax relief • Schemes for mortgage sharing • But ultimately increases demand • Supply

  30. What can the government do? • Demand • Making house ownership more affordable • Tax relief • Schemes for mortgage sharing • But ultimately increases demand • Supply • Relaxing planning regulations • Public housing

  31. You can find these PowerPoint slides on www.economicsnetwork.ac.uk/archive/A-level_Dec07

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