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Factors that effect demand and supply in the housing market

FACTORS THAT EFFECT DEMAND AND SUPPLY IN THE HOUSING MARKET

Nowadays, the topic of house prices is always protecting it's popularity. There are a lot of factors which effect housing market such as incomes, interest rates, unemployment, speculations, availability of mortgages, demographic factors, wealth and future price expectations. In this part of assignment; I will put emphasis on these factors which effect demand and supply in housing market.

FACTORS WHICH AFFECT DEMAND

A) INCOMES

Most of people were thinking that their earnings would grow more. In consequence of it, for many of them buying a house was a popular trend. 'Confident that their mortgage payments would become more and more affordable over time'( economics seventh edition) . Therefore demand showed a significant rise in the housing market.

On the other hand if incomes rise demand for inferior goods or product presents a decrease (shifts to the left).

INTEREST RATES

It has a huge significance when people are doing repayments for their mortgages. If interest rates increase it can be seen that people obviously tend to be saving more than borrowing. In terms of it, demand will illustrate a decrease depending on level of rising (shifts to the left). When the rates drop it will cause an opposite effect. So with high interest rates people will be charged more for their loans and a lot of households are also effected. According to The Bank Of England that interest rates at record levels. In spite of it the affections of the recession is still continuous and it also forecasting it will be taking a place in the close future. On the other hand because of people are not evaluating their investments as much as before to borrow money from banks. Banks tend to rise their credit cat interest in consequence of it credit card interest rates show their highest rate for since 1998. Michelle Slade (from Moneyfacts) When she was explaining her view said; 'The UK continues to suffer from a high level of unemployment and providers are worried about the increased risk of ­customers not repaying their debts'. This assignment will also consider the topic of unemployment as a next factor which affects hosing market.

The base rate was held on February 4, 2010 at 0.5%, the lowest rate in UK history.

The graph illustrates changing in interest rates between September 2008 and February 2010. It can be seen that there is a dramatic decline from 2008 until March 2009. Then it is remained stable in the rate of 0.5%.

UNEMPLOYMENT

High unemployment rate creates a decline in demend in the housing market. In my view; unemployment is associated with income which one of the factors that effects demand. So, when unemployment rate rises, demand drops as inversely ratio.

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