essay housing market

Friday, June 14, 2019

Understanding uk housing market.

• House prices are volatile with frequent booms and busts.
• Despite volatility, and even adjusted for inflation - UK house prices have been on a strong upward trend since the 1930s.

Main factors affecting house prices

• Supply. UK house prices have stayed relatively high (despite recession and credit crunch) because of a shortage of supply. Ireland and Spain have seen much bigger house price falls because they have large excess supply.
• Interest rates. The UK housing market is sensitive to changes in interest rates. Higher interest rates in the early 1990s made mortgages unaffordable and caused a big drop in house prices.
• Economy / unemployment. A recession and rising unemployment usually causes lower demand for buying houses and a fall in price. (falling house prices also tend to deepen the recession)
• Mortgage availability. In the boom years of 2000-07, banks were keen to lend and they relaxed their lending criteria, enabling more people to get a mortgage. But, the credit crunch meant banks had to tighten their lending criteria making mortgages difficult to get (even though interest rates were low)
• see more at: factors affecting housing market

Why are UK house prices so volatile?

• Inelastic supply. It takes time to build houses - with rising demand, supply often can't keep up. This pushes prices up.
• Change in credit conditions. Mortgage availability can vary depending on the state of the banks and financial markets.
• Changing interest rates. Interest rates are used to control inflation, but a rise in interest rates has a big effect on demand and affordability.
• Changes in confidence. In the boom years, we see landlords buying to let and demand rises. When prices fall, people don't want to buy for fear of negative equity.

Why are UK house prices so expensive?

Housing market crashes

How does the housing market affect the rest of the economy, government intervention in the housing market.

• Increasing supply to overcome fundamental shortage.
• Protecting green belt land
• Ensuring minimum standards of house building and ensuring tenants get a fair deal
• Seeking to avoid house price volatility.
• Market failure in housing
• Cause of falling house prices
• Latest stats and graphs on the housing market
• Problems of UK housing market
• Impact of falling house prices

2 comments:

I cant seem to comment on article so emailing. I enjoy your blog, wanted to comment on part of your housing supply article.... While I agree with most of your assertions in this and other blogs, I’d comment on the aspect of housing land supply and planning legislation. It is true that the planning system provides supply; but local authorities must ensure that development plans provide an effective supply of housing land, and will be penalised if they don’t (i.e. if they don’t plan for new houses, they will lose appeals for refused planning applications from house builders), and this performs an automatic regulatory function for the planning system. Whether this framework was enough to satisfy demand in boom years is another matter; however, the economic downturn has changed the profile of meeting housing demand, and I don’t believe it currently constrains supply, for the following reasons: · Demand is quantified by research/monitoring processes and strategically planning for housing, and this is still quantifiable, and suggests there is demands and needs for houses. · However, land values have not lowered so house builders must still pay a premium for sites they don’t own, while they also must plan longer to build-out, and sell houses on a development site (hence, longer borrowing period to fund development and higher interest costs). This means that new houses remain at an over-inflated price. They are forced to retain new build houses at an unrealistically high value. They have to incentivise to sell (i.e. part-exchange, shared equity), which are really schemes to trap buyers (often first time buyers) into buying a house at a significantly over inflated value – they’ll instantly be in negative equity, possibly with further debts to repay to the house builder. What local authorities now find in trying to plan for supply is that there is still an expectation to supply land for new houses; but large portions of the existing supply of land they have (i.e. sites that have permission, and have already passed through the system) are not being built by house builders because they can’t sell at the same rate. They still want more sites, though. This is because i) they can choose easier-to-develop sites (i.e. those with low development costs i.e. providing less infrastructure) and ii) they can land bank and drip-feed supply, to retain high land value, constrain supply and hold higher house prices to retain profits margins at the highest possible level. · For second-hand houses, while there is the same high demand, it is now inaccessible because the housing chain has been massively broken because first time buyers can’t get on the ladder because of access to credit, and consequently second time buyers being unable to sell and often have low equity in houses so can’t afford to drop asking prices, substantially. There has been some fall in prices, but much less than in Ireland and Spain, as you mention – but because of these factors, the market has probably bottomed-out, and there is unlikely to be a significant further fall in prices. Since prices are now as low as they’ll probably be, those that benefit are generally people who bought a long time ago and have massive equity in their property, who can either afford to sell at a lower value to get a better property at the lowest relative value it will have (or will have had) for some time; or those that have excess cash or huge equity that can afford to buy-to-let, knowing their investment, isn’t likely to significantly devalue. It will not be first time buyers or second time buyers, who have a more direct need for housing. While there often is opposition to new houses, and this can slow the system a bit, it can’t, in itself, result in denying planning permission for new houses. This is not a major factor.

Thanks for uploading above comment! Just a few additional points... To clarify, objections are relevant, but only if they raise genuine planning objections. 99% of planning objections should be picked up anyway by the local authority. plus, Excuse the typos etc. Typed on my mobile. Neale

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UC Berkeley

Essays on the Housing Market and Home Prices

• Zhang, Calvin
• Advisor(s): Wallace, Nancy

This dissertation consists of three chapters that concern the housing market and home prices. The first chapter analyzes why foreclosures were more prevalent than short sales despite the advantages that short sales offered. The Great Recession led to widespread mortgage defaults, with borrowers resorting to both foreclosures and short sales to resolve their defaults. I first quantify the economic impact of foreclosures relative to short sales by comparing the home price implications of both. After accounting for omitted variable bias, I find that homes selling as a short sale transact at 8.5% higher prices on average than those that sell after foreclosure. Short sales also exert smaller negative externalities than foreclosures, with one short sale decreasing nearby property values by one percentage point less than a foreclosure. So why weren't short sales more prevalent? These home-price benefits did not increase the prevalence of short sales because free rents during foreclosures caused more borrowers to select foreclosures, even though higher advances led servicers to prefer more short sales. In states with longer foreclosure timelines, the benefits from foreclosures increased for borrowers, so short sales were less utilized. I find that one standard deviation increase in the average length of the foreclosure process decreased the short sale share by 0.35-0.45 standard deviation. My results suggest that policies that increase the relative attractiveness of short sales could help stabilize distressed housing markets.

The second chapter analyzes how the housing market captures the efficiency of public goods. This chapter is co-authored with David Schönholzer. In the U.S., 36 million people live in unincorporated communities without separate municipal government, instead receiving limited local public goods by counties and special districts. This paper formalizes and empirically quantifies the extent of sorting induced by this arrangement of local governance. Based on predictions of a Tiebout model with heterogeneous income and preferences, we document the effect of municipal governance on housing supply, house prices, land prices, and public goods. We use a boundary discontinuity design and an event study design with administrative data from all boundary changes of 189 Californian cities, combined with the universe of individual property sales over the years 1988-2013. We find considerable sorting induced by municipal boundaries and their changes: sales prices are around $6,000 higher in municipalities and land values are 20% higher. Both housing supply and land values increase substantially after annexation. Changes in per capita expenditures and increases in the quality of police services provide suggestive evidence for public goods as the key mechanism for sorting.

The third chapter analyzes the effects of real estate investments by foreign Chinese on local economies in the United States. This chapter is co-authored with Zhimin Li and Leslie Sheng Shen. Starting in 2007, the U.S. witnessed an unprecedented surge in housing purchases by foreign Chinese. We exploit cross-local-area variation in the concentration of Chinese population stemming from pre-sample period differences in Chinese population settlement to identify the economic effects of these investments. Using detailed transaction-level housing purchase data, we find housing investment by foreigners induces higher local area housing net wealth, leading to higher local employment in the non-tradable sectors. Our results suggest the improvement in household balance sheet resulting from capital inflow for housing investment in the U.S. played a mitigating role for the domestic economy during the Great Recession. Based on our empirical findings, we develop a framework that incorporates the housing net worth channel for interpreting the empirical estimates. Our evidence highlight the role of capital inflow and foreign investments on the domestic output and employment, especially in times of economic downturns.

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Home > Robinson College of Business > Real Estate > REAL_ESTATE_DISS > 18

Real Estate Dissertations

Three essays on the housing market.

Patrick S. Smith , Georgia State University Follow

Date of Award

Degree type.

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Real Estate

First Advisor

Dr. Jon Wiley

Second Advisor

Dr. Karen Gibler

Third Advisor

Dr. Vincent Yao

Fourth Advisor

Dr. Crocker Liu (external)

Essay 1: Institutional Investment, Asset Illiquidity, and Post-Crash Housing Market Dynamics

Abstract: I demonstrate that housing’s mildly segmented market structure adds an additional measure of asset illiquidity risk for owner-occupiers and their lenders by examining the effect of a house’s conversion from the owner-occupied market to the rental market. From 2012 to 2014, I find that owner-occupied houses that were purchased by institutional investors and converted to rentals after the real estate crisis sold for approximately 5% less than similar houses that sold to owner-occupiers. The large discount was in addition to REO, foreclosure, short sale, and cash purchase discounts which, when combined, highlight the low liquidation value for owner-occupied housing.

Essay 2: Homeownership: An examination of its effect on house prices

Abstract: Subsidizing homeownership is only justifiable if it increases homeownership attainment and creates external benefits that outweigh their costs. Using parcel-level panel data I isolate and examine the effect of homeownership on surrounding house prices. Homeownership has a causal effect on house prices, but substantial variation exists across quantiles. Changes in homeownership have a lesser (greater) effect on house prices in the upper (lower) deciles of the conditional house price distribution - despite the fact that households in the upper deciles are the primary beneficiaries of the federal tax subsidies for homeownership.

Essay 3: School Quality, Latent Demand, and Bidding Wars for Houses

Abstract: I examine the recent rise of bidding wars and their effectiveness relative to traditional listing strategies. A simple theoretical model predicts that underpricing a house to incite a bidding war will be most effective in housing markets with high levels of latent demand. I use school quality as a proxy for latent demand as households with children naturally want their kids to go to the best school possible. I posit that the limited supply of housing within high quality school districts creates latent demand for housing within those districts. Evidence from Atlanta supports the model - I find that underpricing a house to incite a bidding war is more effective in markets with latent demand. However, underpricing does not outperform traditional listing strategies.

https://doi.org/10.57709/8833629

Recommended Citation

Smith, Patrick S., "Three Essays on the Housing Market." Dissertation, Georgia State University, 2016. doi: https://doi.org/10.57709/8833629

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Housing Market in UK Analysis Essay

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Introduction

Everybody wants to own a decent house at an affordable price that too in a place adjutant to their office, schools and hospitals. No doubt, superior quality with reasonably priced housing offers secure and stable family lives. Any one would be happier, healthier, and richer when one has affordable decorous homes proximate to healthcare, schools and transport links.

Superior and affordable housing can perk up one’s social, economic and environmental well-being. It assists to foster superior communities that can draw skilled workers and investment. During the sustained economic stability and growth phase in UK, more than million people were able to own their own house thanks to the lesser mortgage rates.

However, UK house price have plummeted by more than 20 percent from the highest price it enjoyed in August 2007 during 2008. There are many reasons that can be attributed for this sudden fall in house prices. This research essay analyzes the changes in house price in UK over the last two years and predicts what is likely to happen to the market over the next year or two.

In economy, there is always co-relationship between consumer spending and house pricing. According to Attanasio et al, house prices do not have direct independent impact in explaining consumption behaviour whereas Campbell and Cocco is of the opinion that they play a larger role. Quigley and Schiller find empirical evidence of a housing wealth impact without having regard to common factors where as Aron and Muellbauer is of the opinion that a major portion of the earlier correlation was responsible for variation in common casual factor. (UK Budget 2008: P.162). In rising house prices scenario, house owners may have a feeling of pride due to increase in their networth substantially and hence will be spending more on consumption.

It is to be remembered when UK experiencing a fall in house prices, it fosters a negative impetus thereby causing house prices to keep declining. When house prices are declining, it creates a negative sentiment towards purchasing a house as it makes investor to follow wait and watch approach. During recent recession, UK witnessed a sharp decline in interest rates. In such scenario, those who wish to avail a variable mortgage for purchasing a house seems to be more fascinating for residential purpose than renting.

House price data released by Halifax during January 2009 indicates that UK house price have plummeted by more than 20 percent from the highest price it enjoyed in August 2007. It has been predicted that UK housing market is anticipated to fall by a minimum of 15 percent during the ensuing 2 years. This decline is going to be increased by 25 percent in the near future despite of the fact that UK is going to organise the 2012 Olympics. As per the Royal Institute of Chartered Surveyors (RICS), the UK’S current housing market is witnessing a meltdown on countrywide basis. In the last three decades, house prices are declining at lighting speed in U.K.

According to British Bankers Association (BBA), there has been a sharp decline in the quantum of mortgages sanctioned in July 2007 for the purchase of houses to 17772 as against 64,015 which is equivalent to decline of 72%. Further, there was a decline of 50 percent in the loans for equity withdrawals as has been borrowed by homeowners to spend on housing. Due to this, the overall quantum of mortgage loans outstanding has fallen by £35 billion.

Likewise, the supply of housing loan also witnessed a sharp decline as it plummeted from 159,599 houses in June 2007 to£116,699 houses in 2009. There has also been sharp downfall in mortgage contracts due to tightening lending criteria. There has been increase in the remortgaging due to deep interest rate cuts despite of the fact in some cases penalties have been levied in case of remortgaging. One another reason for the decline in the house prices in UK is the disinterest shown by the ailing mortgage banks which are reluctant to lend to new mortgage loan to customers and this has made the prospective home buyers have to pump in at least one-fourth of purchase price as equity.

Due to recent mortgage crisis, lending to housing has been tightened as it requires a minimum of 25% by way of deposits. Further, salary eligibility has also been considerably increased and this has led to less demand for houses in UK. This has forced the house price in UK to drop further by 20 percent.

UK has been an attractive investment centre for the OPEC nations as it witnessed massive petro dollars investment in UK housing sector in the past. Due to crash in oil prices in 2008, there has been decline in the influx of petro dollars from Middle East and this has been cited as one of the reason for the downfall in housing price in UK. (Walavat 2009)

Crash in house prices varies from place to place in UK. On overall basis, the house price fell by 15.6% in North, 17.5 % in the South in the 12 months period ending March 2009. Northern Ireland witnessed a massive crash in house price of 30% year on year basis whereas Wales reported 8.2% cross and Scotland reported about 12.5%. (Hickman 2009).

Real disposable income in UK was £ 28,000 in January 2006. It has increased to £ 32000 in June, 2009. There is an increase of 14% in disposal income of UK citizens. However, due to abnormal increase in unemployment due to global recession, the fall in income of individuals led to fall in housing prices.

The interest rates touched the peak of 5.75% in September 2007 now has fallen and remained at 0.50% at August 2009. This has created direct impact on the housing market as lending has become unprofitable due to low interest rates that exist in UK from March 2009 to till date.

Table 1:Trend in All house prices in UK.

Housing Demand

An increase in the real income levels of consumers may push the house prices to upwards. Likewise, if there is a substantial increase in the substitute products, then the demand for the original products will increase. For instance, if rental rates are being increased, consumers started to plan to have own house rather than renting it out. Likewise demand for housing will also be affected when there is a transformation in the consumer’s penchant towards owning a home.

When the demand for housing in UK moves back , the quantum of house demanded declines back to Qo – but housing is being impacted by sticky prices and hence , housing prices only declines slowly to Po.

According to RICS, there has increase in the number of unsold houses which is a ten-year high. Since 1989, the number of unsold houses has reached to alarming rates in 2008. Due to heavy stock pile of unsold houses, the purchasers are negotiating with sellers for heavy discounts in the house prices. Further, as per RICS, the fall in the house price is moderate in Wales and London is at modest pace whereas there were sharp fall in house prices in Humberside, Yorkshire and East Angila. There has been a decline in demand for the houses in general in UK due to tighter lending parameters and due to prevalence of uncertainty of economic scenarios.

Construction industry has warned the UK government that there will be loss of thousands of jobs in construction industry unless there has been intervention by government in the form interest rates cuts.

The recession in the housing market in UK has already affected many companies engaged in the construction activities. For instance, Bovis’s was down by £ 12 million in revenues by the year end 2008 and it has sold less 193 homes in 2008 as compared to its previous year.

In the housing crash that occurred between 1989 and 1992, construction workers were able to get jobs in commercial property market. However, during this current recession, both housing and commercial property sector were badly affected and hence there was a sharp job loss in the construction industry in UK. In anticipation of a severe year’s trading ahead, Bovis has reduced its borrowing to just £ 44 million, connoting gearing at an historic low of just 6 %. (Gilmore and Rossiter 2008).

As per RICS , since 2003 , the rental market in UK is witnessing a decline which is proving to be disastrous to landlords as it may compel tenants to force landlords to ask not only for deflationary remission in rents but also to compel for freeze on rents. The house owners have no other option except to accept the request as they may incur capital loss if they try to dispose their assets in the falling markets. Hence, the buy to let housing investors will be probably losing a great sum of money on each property every month till they prolong to hold such loss making investments.

The demand for the houses for rent by Eastern European Union workers are also diminishing as these workers are deciding to migrate back to their home nations in the event of ever increasing recession in UK. These developments have added more fuel to fire to the buy to let investors as they now burning their fingers by investing in the housing market in UK. (Walayat 2009).

There have been two-fold increase in house prices in UK in factual parlance in the last ten years. The present mean cost of houses is in excess of £210,000 which is higher by 8 times of the average salary drawn by an UK citizen. This has resulted in more complexities for young generation and families who wish to purchase the houses for their own purpose. Though construction of more houses is the need of the hour to gear up for long run affordability forces, more support is required to assist younger generation and families over the next few years. Since 1997, there has been more focus on enhancing the eminence of social housing as it is obligatory on the part of UK government to build up more reasonably priced houses both to buy and to rent, by taking into account the ever increasing requirements of family housing. Housing associations, the private sector and the local officials will have now fresh chances to construct and administer new homes also.

The last decade has witnessed doubling of prices of houses and if UK government neglect the increasing need for more houses, it will result in broadening of wealth inequality, aggravated objectives and damage to our economy.

Interest Rates

For determining the mortgage rates, the cost of borrowing the money and the capacity to repay the loans plays a vital role. As increase in interest rates may make the repayment of mortgages to become more costly and the chances of home loan repayment default becomes more possible. It is to be remembered that there were high levels of interest’s rates during the earlier house price decline both in 1973 and in the early 1990’s. The chances of further interest rates decline in the future may assist to stabilise a declining housing market but the UK government Monetary Policy committee’s capability to announce interest rate cuts may be diluted if inflation augments. Further, the real effect a reduction in base interest rates has on household’s capability to repay mortgage payments rests on the degree to which such mortgage bankers pass on the reduction to loan takers especially for interest –only or new fixed rate mortgage loans. It is to be recalled the majority of lenders have not passed on the interest rate cuts to their fixed rate deals in various instance whenever Bank of England announced a cut in the base interest rates.

Future Initiatives

UK’s Prime Minister recently revealed UK government initiatives for offering of thirty lakhs new house by 2020 that offer homes to needy residents which mirror the varied requirements of all of UK’s residential districts. It is to be noted that the housing stock is increasing by 1.85 million per annum, the quantum of houses that being offered for those who are living alone is estimated to nurture at 2.23 million per annum. UK government is having plans to deliver about 20 lakhs houses by 2016 and 30 lakhs houses by 2020: UK government is estimating that housing provision will increase over period towards the 2.4 millions per annum mark in 2016. By taking this into account, UK is planning to deliver about two million new homes by 2016 and progressing at around 2.40 million houses per year over the succeeding forty-eight months and to offer an additional million new homes before the end of2020. To fulfil this objective, the Housing Corporation of UK is investing about £2.3 billion to offer about 6,301 homes in tiny villages and cities through its 2006 to 2008 plans. (Budget 2008).

In UK, the rural areas consist of more than half of local boards with the uppermost home price to income percentage. Besides, about 12.5 % of houses in rural provinces are social homes for rental purposes as contrasted to 21% in urban provinces. In spite of higher average incomes than compared to urban households, roughly about 32.1% of country families have rental revenues of not more than 61% of the English median. In UK, Rural district officials get a fair allocation of reasonable housing investment. Unfortunately, majority of the outlay goes into the town provinces rather than to rural areas. It is imperative that regional and local deliverance agencies engross with country communities and people to recognise “rural reasonably priced homes” requirements and act in association with distribute houses where they are required in top priority. (Budget 2008).

Currently, in UK, buyers are being recommended to avail an equity loan of up to one-fourth of the price of property which can be availed from any one of the four participating lenders. However, UK government is of the view that existing housing products are not adequately supple especially for the new home buyers. Moreover, UK government do aware that this scheme is not presently flexible enough. Hence, it has been decided by the UK government that from 23 July 2008 onwards, it will be extending a “new 17.51% Government Equity Loan product”, which home buyers will be able to employ in combination with a credit from any lending institution. (Budget 2008).

It is to be observed that when consumers purchase homes they are in general making one of the major fiscal choices of their lives. Though owning a house can offer many advantages, there are also perils affiliated to it. These comprise the major perils like sudden decline in house prices, increase in interest rates or discontinuance of flow of income as a member of the household may become unemployed or might die in middle tenure of the loan. For instance, at the very high end to cover some of these risks, financial insurance can be available by house purchasers. (Budget 2008).

Future Expectation

Housing Market depression and UK Mortgage Banks

Northern Rock bank was worst affected due to housing market turmoil and prospects of its survival were blemishing. UK’s biggest mortgage bank, Halifax is also in red and it was on the edge of collapse during September 2008. Another mortgage bank namely HBOS is also in financial trouble. During the middle of the 2008, the share price of HBOS dwindled over 95% and it is clearly demonstrating how severity is the present bearish nature of UK’s housing market. Once considered to be premier stock, now HBOS stocks are being quoted less than penny. As the result of government intervention, HBOS stock has been further diluted.

Correction Measures

UK government started to worry over the increasing of bankrupts among banks in UK as the house prices started to fall in September 2008. UK government has introduced more correction measures to set the falling banking sector. It has introduced a ban on the short selling of financial stocks. It has nationalised the ailing banks like Bingley and Bradford and it has introduced a massive interest rate cuts during October 2008. UK government also announced unprecedented housing bailout packages of £500 billion to help the ailing UK’s mortgage banks.

UK financial markets witnessed intense volatility and there had been daily movements as great as 10% which was never witnessed in UK’s economy since the 1987 Financial Crash.

Adequate measures have already been initiated by the Bank of England to ease tensions both in financial and economic markets in UK by announcing interest rates cuts and quantitative easing.

Further, Bank of England announced an interest rate cut to the tune of 1.5% during November 2008. UK government also announced VAT cutting budget in an effort to motivate consumers to spend more.

The Royal Institution of Chartered Surveyors is of the view that during June 2009, there has been an increase of 0.10% of increase in the housing price in UK. RICS claims that residential property market seems to have found a ground now perhaps on temporary basis.

However , due to continued threat of jobs losses for the balance period in 2009 and as banks are setting high obstacles for mortgage borrowers by framing high eligibility criteria , there seems to no immediate transformation from the recession in housing market.

Labour government has reduced the capital gain taxes from 40% to 18% to augment the investment in residential housing sector. This move by the UK government is expected to kindle the investments in housing sector.

Strong reasons why Housing Market would not fall

After joining as EU member, there had been large inflow of migrants around 800.000 individuals to UK from neighbouring Accession States which would make the UK as a busy housing market in Europe in the ensuing years. Further, due to recession in UK’s housing market, there has been slowdown in the construction of new houses. Critics argue that as such, this demand may be in excess of the supply in the years ahead in UK. As such, the prices of houses are expected to soar sharply in the near future. Economists are of the view that fundamental of UK’s economy is more robust as UK economy is able to perform moderately than other nations in mainland Europe.

To resurrect the UK’s housing market, UK government announced various bailout packages like cutting the interest rates straight from five percent to just 2 percent and pumping out £ 600 billion as bailout packages which are aimed to resurrect the falling housing market in UK. This would help the UK banking especially mortgage banks to resume its normal lending policies and to support the UK’s economy especially UK’s housing market. According to “British Bankers Association (BBA)”, there has been a fall of 73% in the number of mortgage approval which declined from 64020 to 17,775 in July 2007 alone. Likewise, loans to equity withdrawals which have been considered as a fundamental to UK’s consumer bonanza has declined by 50%.as home owners have availed loans against equity to spend. The overall impact of this is that the quantum of mortgage loans outstanding has shrivelled by around £35.1 billion as against a steady mortgage which would have needed an escalation of at least £25 billion over the analogues period.

This has an impact on average value of loan sanctioned for the purchase of houses which pinnacled at £ 160,000 in June 2007, and now has been hovering around just £ 117,000. This denotes a high deflationary trend in housing markets in UK. Since, there has been tightening of lending policies by mortgages banks, the demand for houses have gone down as obtaining a credit for the purchase of houses has become scarce.

The changes in Housing Market of UK within the Last Decade

Long-term Housing Price Forecast for UK

It is predicted that mean housing price in UK is expected to reach £ 3, 00,100 in the next decade. This connotes that fall in housing prices in UK is a temporary phenomenon. The opponent of this prediction should realize that mean price of houses in UK had fallen by more than 15% in a year in 1992 and at that time no one would have predicted that mean home prices would increase to 200% in the ensuing decade? Hence, it is estimated that present housing price decline is expected to move upwards in the year 2012.

According to National Housing Federation research study, despite of down turn in housing markets, house prices in UK is expected to rise by at least 25% in the five years to come and is expected to reach £ 274,700 with in five years from 2009. The research conducted by Oxford economists predicts that house prices will decline in 2009 and will start to recover in 2010 and then aggressively increase in 2011.

The above research paper states that house prices in UK will augment by:

• In 2011 by 5.3%
• In 2012 by 9.2 %
• In 2013 by 9.3%

The housing market in UK is having a considerable effect on the UK economy as about 80% of households are held by private sector. In Europe, UK is the leading nation in home ownership and housing plays a greatest structure of wealth in the UK.

It is obvious that the UK housing market prolongs to witness the damage of depressed market status. The present credit crisis prolongs to shatter the faith in the financial market. The Chartered Surveyors were of gloomy about the housing price expectations in UK since 1998 and however, it is not expecting a great fall in housing prices as UK underlying economic structure remains strong and the UK labour market remains vibrant.

From the table 1, it is evident that house prices have increased steadily till the first quarter 2008. From the second quarter of 2008, the house prices have started to decline and as of 2 nd quarter 2009, there were decline in house prices in UK by 11.7%

However, UK government has taken initiatives to correct the housing market in UK by cutting the interest rates straight from five percent to just 2 percent and pumping out £ 600 billion as bailout packages which are aimed to resurrect the falling housing market in UK. However, during 2012, housing prices will regain and will be quoting at prime rates thereon as per the estimates shown in the Fig 2. The study by National Housing Federation research also reveals that housing price decline is only a temporary phenomenon. No doubt, the fall in housing prices in UK is a temporary phenomenon and it is the right time for the investors to invest in housing sector to reap huge benefits later on.

List of References

• Budget (2008). Great Britain. HM Treasury . Housing and Private Consumption in the UK. London: TSO.
• Gilmore Grainne & Rooiter James. (2008). House Price Downturn Worst since Slump of 1990’s, Surveys Report. [Online]
• Hickman Martin (2009) House Prices Up but “Too Early” to Call End to Crash. The Independent [ online]
• Walayat Nadeem (2009) UK Housing Market Crash and Depression Forecast 2007 to 2012 [online] Web.
• Real Estate as an Investment
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• The U.S. Subprime Mortgage Crisis Overview
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Something Has to Give in the Housing Market. Or Does It?

There appears to be no quick reprieve coming for rising prices: “It’s not a bubble, it really is about the fundamentals.”

By Emily Badger

Two years into the pandemic, rundown bungalows command bidding wars, buyers keep snatching up places they’ve never seen, and homebuilders can’t find enough cabinet doors for everyone who wants a new home. The median price for an American home is up nearly 20 percent in a year. The for-sale inventory is at a new low . And the hopeful buyers left on the sidelines have helped drive up rents instead.

All of this may feel unsustainable — the tight inventory, the wild price growth, the dwindling affordability. Surely something’s got to give.

But what if that’s not exactly true? Or, at least, not true anytime soon for renters locked out of homeownership today or anyone worried about housing affordability. There’s probably no quick reprieve coming, no rollback in stratospheric home prices if you can just wait a little longer to jump in.

“It’s not a bubble, it really is about the fundamentals,” said Jenny Schuetz, a housing researcher at the Brookings Institution. “It really is about supply and demand — not enough houses, and huge numbers of people wanting homes.”

Neither side of that ledger has a quick fix. More than six million existing homes sold in 2021, the highest number since 2006, according to data published Thursday by the National Association of Realtors. But that was still well short of satisfying demand. And there’s little evidence to suggest the nation is in a hurry to correct the imbalance between supply and demand.

“My pessimistic view is that the economy is perfectly capable of running with unaffordable housing,” said Daryl Fairweather, the chief economist at Redfin. This was evident over the last decade, she said, when affordability worsened even as the economy continued to grow. And that reality has enabled politicians and the public to largely neglect the issue of housing affordability.

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The Housing Market, Essay Example

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The housing market plays a crucial role in the economy. This is done with the help of a real estate market and the houses are sold and purchased either directly between individuals or indirectly with the help of real estate brokers. The basic concept of forex traders plays a role frequently and pays close attention to the housing market. In the country where there is a buoyant in the housing prices, it have a tendency to increase consumer spending. These are imperative factors of a strong economy. The ownership of house is also known as owner occupancy is the most famous type of real estate investment in the United States. Nearly two-thirds of residents have ownership of their homes as reported by the National Multifamily Housing Council. Individuals who are in the housing market place to purchase a home to live in often need to borrow money in the form of a housing mortgage since home prices are commonly well above the finances of young people beginning a household. The aim of this paper is to follow the People boxes Inc. objectives which is a consortium of real estate owners that seek the elements that drive the demand in real estate. The paper will analyze the key factors that play a role in demographics and purchase of real estate with the help of Statistics analysis. These factors are dependent on the house hold income. So, the factors of demographics that will be considered for analysis are youth, retired citizens, age, education level, rental occupants and a combination of all these factors to reach a conclusion.

Rental Property

In the rental property market we can see that income varies easily and that is the reason why people choose to rent instead of purchasing. As the mortgage will only plan to stay there temporarily which shows that the people may not have the capital yet to fully commit to mortgage. Many advantages have been provided by the rental property and comprises of a wide variety of choices for people’s home throughout their stages of life. The recent economic turbulence highlighted the many benefits of renting and raised the barriers to homeownership, igniting a surge in demand that has buoyed rental markets across the country. However, substantial erosion in renter incomes has pushed the number of households paying excessive shares of income for housing to record levels. Assistance efforts have failed to keep up with this expanding need, undermining the nation’s long standing objective of ensuring decent and affordable housing for everyone. Contrary to the long uptrend in homeownership, American households have progressively turned to the rental market for their living. Factors to consider are household income, renter occupied housing, and housing stock per capita.

Model “A” governs that household income is dependent on the percentage of the total housing stock that is renter occupied while model “B” governs that household income is dependent on the percentage of the housing stock that is renter occupied as well as the housing stock per capita. Model “B” is definitely more accurate than model “A”, making model “B” the better choice. This is because model “B” takes into consideration the housing stock per capita factor and this factor added on to the single percentage factor in model “A” provides a more solid outcome when determining what household income is actually dependent on. Where model “A” gives a more broad or general outcome regarding what factors that household income is dependent on, module “B” gives a specific outcome with the housing stock per capita factor, further specifying the general conclusions of model “A”.

Every variable is significant in determining what factors household income is dependent on. However, in regards to rental property, the most significant variable is the percentage of homes that are renter occupied. This shows when this variable is present in all of the rental property models A, B, and C. The housing stock that is renter occupied contributes to both household income and the housing stock per capita. All factors appear to be dependent on this one variable.

My interpretation of these models is that levels of income do in fact vary with rental housing, given the variable of renter occupied housing. Rental occupied housing however, may be impairing the housing market. Rental vacancy rates declined to 7 percent in the last quarter of 2014. This was the lowest percentage of rental vacancies in 21 years, based on a report from the Census Bureau. Monthly rental payments on such vacancies, on the other hand, have increased, generating more rental income and cutting into savings that might have otherwise gone towards actually purchasing or financing a home. Median listed prices of rent in the US inflated to about 9 percent between 2011 and 2013, as reported by the Census Bureau. Median asking prices on home sales, in turn, increased by less than 2.5 percent over the same period.

Considering the residual plots, there does not seem to be any problems with regressions other than what metropolitan statistical areas (MSA) People Boxes, Inc. is analyzing. A general statistical gathering of data from multiple MSA’s might provide inaccurate outcomes depending on who is reading them as income levels as well as the factors that drive them in the housing market vary among the spectrum of MSA’s. For better accuracy, People Boxes, Inc. may want to consider these variations among MSA’s.

Analysis of the Data

By looking at the data in the excel sheet we can see the cities which are rental income and which are not. The data set comprises of 280 cities with two variables. One is the Total Households and the other is the number of units rented. We can see that the minimum units are 23,220 whereas the maximum are 7,738,759. The units rented are minimum 20,987 whereas the maximum unites rented out are 6,716,032. The data is analyzed using SPSS software which shows the descriptive statistics, the comparison of means using ANOVA, One sample t test etc. From the one sample t test we can say that at 95% confidence interval the values are to be accepted for both the upper and lower values. The lower value is 22,2434 whereas the upper values of the total household is 387,711.Teh unites lying in between 196,370 and 343,384 are to be accepted for rent.

In keeping with the large share of renter occupied housing of modest income, rental housing is emphasized in rather low-income communities. The recovery of rental housing is widespread, with lesser vacancies, higher rents, as well as increased levels of construction evident in a large majority of markets. Indeed, multi-family permitting has progressed in two-thirds of the 100 largest metropolitan areas, exceeded medians during the past decade in a third of those markets, and even surpassed earlier peaks in a few metros. The accelerated expansion of housing production has raised concern about potential over-building, particularly since long periods of development may mask the total volume of new multi-family housing coming on the housing market. So far, however, there are no signals of significant increases in vacancies or decreases in rents that might indicate an oversupply of housing units. Still, vacancy rates do appear to be declining out while rent increases are slowing in many markets. This might be suggesting that supply and demand in the rental market are adjusting into balance. One component of the rental market that does require attention, however, is multi-family financing.

The fall of the housing market was a key component in the economics of the Great Recession of 2008, and its slow revival is one of the major impediments to the general economic recovery. Even so, the renter occupied sector bounced back substantially quickly both because demand has been increasingly strong and because it was less caught up in the lending excesses that drove the housing market. Through an array of measures, the renter occupied sector has been progressing for several years.

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( Realtor.com; Getty Images )

America’s Hottest Housing Market Has Ranked No. 1 a Record 29 Times

America’s housing market has been sluggish due to high interest rates—but two regions are bucking that trend.

The Northeast and Midwest are the only two regions represented in the top 20 of the Realtor.com Hottest Housing Markets list  for the 11th month in a row.

Both areas continue to command homebuyers’ attention, as demand in the top 20—measured by views per property—was 2.5 times the national level in August. They also saw prices climb 3.3% year over year, even though home prices dropped nationally by 1.3%.

“The Midwest and Northeast metros have dominated the list since February 2022,” notes Realtor.com® senior economic research analyst Hannah Jones in her report .

America’s hottest market is a mainstay on the list

Manchester, NH, ranked as the country’s hottest housing market in August. This is the 29th time in the data’s history that the metro has nabbed the top spot on the list, and it’s been among the top three markets each month for more than three years.

The median home price in Manchester is $550,000—and it’s just 55 miles from Boston , where the median price is $834,500 .

Manchester’s listings received 3.3 times more views in August than the national average.

“High demand is met with low inventory as buyers claim available homes,” says Jones. “This dynamic has kept time on market quick and competition fierce.”

As a bonus for buyers, New Hampshire also has no state income or sales tax.

(Realtor.com)

Another hot market—and sizzling state

Coming in second on our list was Oshkosh, WI . Listings here received three times more views than the national average in August, and a typical home costs $330,000.

Wisconsin was also the hottest state in August, with five metros appearing in the top 20.

In addition to Oshkosh , real estate in the Badger State was also hot in La Crosse (No. 10), Racine (No. 12), Janesville (No. 18), and Milwaukee (No. 19).

Wisconsin boasts a low cost of living, along with family-friendly amenities, nationally ranked health care, and close proximity to Chicago and Minneapolis .

More hot markets

Rockford, IL , nabbed the No. 3 spot. In August, houses there spent a median of 25 days on the market—which was 28 fewer days than the national average. The low cost of living attracted buyers, as the median list price was just $215,000—nearly half of the national median price of $429,990.

Rounding out the top five of the list were Springfield, MA , with its listings getting three times more views than the national average, and Concord, NH , with houses spending a median of 32 days on the market—23 fewer days than the national average.

Newcomers to the list

All but seven markets in the top 20 were also on the July list.

La Crosse, MN , and  Erie, PA , jumped from 35th and 39th to 10th and 15th, respectively.

Although those two markets jumped the most, Columbus, OH (No. 16), Dayton, OH (No. 17), and Milwaukee  (No. 19) also ascended into the top 20 this month, as did the two cities that tied for No. 20: Lancaster, PA,  and Toledo, OH .

Metros that climbed the most—and plunged the furthest

The markets in the top 300 that heated up the most are Sioux Falls, SD (96 spots hotter), Bloomington, IL (87 spots hotter), and St. Cloud, MN (83 spots hotter).

Meanwhile, the markets that cooled down the most on the list include a mix of Southern and Western metros, according to Jones. They are Albany, GA (153 spots lower), Mobile, AL (109 spots lower), Tampa, FL (108 spots lower), and Wichita Falls, TX  (107 spots lower).

Faster sales in hot markets

Homes in the hottest markets spent just 32 days on the market in August.

This was the same pace as last year, but about three weeks faster than the national median.

“High demand and scarce inventory conditions drive views per property higher, upping the competition for homes in the hottest markets and leading to snappier home sales,” says Jones.

Larger markets remain flat

The largest 40 markets across the country did not climb the hotness ranks, on average, compared with last year—which is the first month that large markets have not heated up annually since January 2023.

Prices fell an average of 1.5% in these markets, the second month of large-market average annual decline in the data’s history.

“Large markets are starting to adjust to subdued buyer demand by lowering home prices and selling lower-priced homes,” says Jones.

This month, the five most-improved large metros were scattered across the country, with three in the Midwest, one in the Northeast, and one in the West. They were Las Vegas (67 spots higher), Philadelphia (62 spots higher), New York City (49 spots higher), Pittsburgh (48 spots higher), and Kansas City, MO (46 spots higher).

Julie Taylor is a writer, producer, and editor. Her work has appeared in Cosmopolitan, Redbook, and other publications.

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Housing Supply (Revision Essay Plan)

Last updated 15 Dec 2018

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In this video we look at building an answer to a synoptic 25 mark essay question (Edexcel) on the micro and macro effects of an increase in house-building in the UK economy.

Here are the slides from the presentation

Micro point 1

An increase in new house-building will lower prices and therefore help to make property more affordable for home-buyers.

For example, eliminating VAT on building new homes on brownfield sites reduces costs for building firms and therefore make it more profitable to construct new homes. An increase in supply can bring down prices for home-buyers if the number of new homes exceeds the increase in demand for property.

Whether prices fall and makes housing more affordable depends on the other costs of building homes. The construction industry might be affected by skills shortages which leads to higher wage costs or higher costs caused by tougher building regulations such as meeting emissions targets.

Micro point 2

Increased house-building may lead to environmental damage which could then be a cause of market failure.

Building new homes can lead to external costs in the form of noise pollution and waste products. Building hundreds of new homes in a local area might negatively affect people already living there and lead to increased congestion on roads.

However a counter argument is that the local authority might insist on construction companies spending money on improving roads and also building new facilities for the local community as part of the planning process.

Macro point 1

Policies that successfully increase the rate of new house-building will help to stimulate UK economic growth in both the short and the long run.

This is because investment in new housing is a component of aggregate demand and is likely to lead to a strong multiplier effect as building is a labour-intensive industry. More homes also increases the geographical mobility of labour which will help to reduce the rate of unemployment in the longer term.

The size of the multiplier effect depends on whether the building industry is able to expand their labour force. They may face skills shortages which leads them to use workers who have migrated from overseas. Their remittances sent home would be a leakage from the circular flow of income.

Macro point 2

An increase in house-building will lead to a rise in government tax revenues which will help to bring down the fiscal deficit.

House-building companies will make more profits when new homes are sold and pay more corporation tax. More houses will also be bought and sold leading to an increase in revenue from Stamp Duty and VAT on building/DIY materials.

This macro effect depends on the extent to which building homes is actually profitable. Building firms might face higher costs (e.g. imported raw materials) which lowers the rate of return and cuts corporation tax liability.

Final reasoned comment:

There is substantial unmet demand for housing in the UK and a rise in new house-building is likely to provide significant micro and macro benefits. But the government needs to maintain a balance between homes available to buy and those offered for rent since new homes are unaffordable for many people.

What are the key barriers and potential solutions to tackling the under-supply of #housing in England? Read our latest analysis https://t.co/cJABXhuRW0 pic.twitter.com/m7yoqLipvq — Commons Library (@commonslibrary) December 11, 2018

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Why competition in the housing market is cooling off

More homeowners  are listing their  homes  for sale, but properties are taking longer to sell as potential buyers face high prices and interest rates.

New listings from home sellers jumped in May, up 13% from a year ago,  according  to the latest market report by Zillow.

“You have an increase in sellers coming back on the market,” said Orphe Divounguy, a senior economist at Zillow.

But with buyers not returning to the market, many new listings are just adding to inventory. The number of homes on the market rose 22% compared with last year, Zillow found.

“Homes are staying on the market for a bit longer because the sales are not keeping up with the flow of homes coming on the market,” Divounguy said.

'The market is slowing down'

Almost two-thirds, or 61.9%, of homes listed on the market in May had been for sale for at least 30 days without going under contract, according to a  new  analysis by Redfin. About 40.1% of homes that were for sale in May had been listed for at least two months without going under contract, Redfin found.

“The market is slowing down. Homes are taking longer to sell and that allows inventory to accumulate on the market,” said Daryl Fairweather, chief economist at Redfin.

Yet despite the recent jump in supply, “we’re still starved for inventory in the for-sale market,” said Divounguy. The housing inventory in the U.S. is still 34% below pre-pandemic levels, according to Zillow.

“We’re short nationwide of about 4.3 million homes,” he said. “We’re still in a housing unit deficit.”

Homebuyers are waiting on lower mortgage rates

As mortgage rates have remained high and housing affordability has strained household finances, buyers have been unable to enter the market, Divounguy explained.

“Buyers are facing these incredibly high mortgage rates, at least relative to what they were during the pandemic,” said Fairweather, who believes homebuyers might lack the motivation and financial ability to purchase a home.

The 30-year fixed rate mortgage in the U.S.  slid  to 6.95% on June 13, lower from 6.99% a week prior, according to Freddie Mac data via the Federal Reserve. 

While mortgage rates could “change pretty quickly” or “on a dime,” said Fairweather, buyers are unlikely to see big movement in the near term.  The Fed held rates  steady at its June meeting and now anticipates just one rate cut this year. Its next meeting is July 30-31.

“There’s no right answer for homebuyers who are deciding whether to wait or not,” Fairweather said. “It’s just up to chance when mortgage rates drop. Nobody really knows when that will happen, so it’s hard to plan your life around that.”

What to do if you're a buyer or a seller

Some markets in the U.S. are seeing a significant increase in unsold inventory. About 60.5% of listings in Dallas, Texas, stayed on the market for at least 30 days, up from 53% a year earlier, according to Redfin.

In Fort Lauderdale, Florida, the share of unsold listings that have stayed on the market for at least 30 days is 75.5%, up from 68.2% a year prior, Redfin found.

A similar increase is happening in two other areas in Florida. The share of unsold homes in Tampa that have been on the market for 30 days is 68.7%, up from 61.9% a year ago; in Jacksonville, 69.2%, up from 62.9% in the same period, per Redfin data.

“When you give buyers more options, that means they have more bargaining power,” Divounguy said.

If you notice homes for sale linger on the market for longer in your area, “there’s probably an opportunity to get [a property] for under its listed price,” Fairweather said.

If you make it into the  home inspection   process  and you learn about issues that were neither noticeable during the initial walkthrough nor disclosed, it may be worth asking the home seller to do repairs, she said. 

But don’t overdo it: “You don’t want to be nit-picky and ask for every single repair,” such as chipped paint, Fairweather said. 

Other markets are still in favor of home sellers as inventory remains tight, Divounguy said. Not only do many homeowners have  record home equity , they also have low mortgage payments.

If a home seller needs to move this year due to upcoming  life changes  and their area is experiencing high levels of unsold listings, they may need to be prepared to cut their asking price to draw interest.

“Price cuts sell homes,” he said.

More from CNBC:

• Here’s the inflation breakdown for May 2024
• How much homeownership costs annually
• Biden and Trump both want to extend tax cuts

Ana Teresa Solá is a personal finance reporter for CNBC.

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