Analysis of Factors behind Growing housing demand
According to a recent article published by the BBC on November 8th 2005, house prices in UK were higher by 3.5% for three months upto September as compared to last year. The average standing price was estimated at £194,589 which was 16.3% over last year.
However the number of house sales for the three months accounted to 261,481 which is 15% lower as compared to previous year The highest price rise took place in North of England and Wales while South of England and the Midlands showed the slowest growth. London showed a dramatic rise of 4.47%.
Surveys conducted by Nationwide and Halifax have indicated a slight boost in House prices with Halifax quoting annual inflation in house prices continuing for a third month in a row. Even though the Land registry figures are not so up-to-date as compared to the records of banks and building societies as they count by recording completions and not mortgage approvals yet these figures are deemed accurate because they cover all property transactions to date.
Martin Ellis the chief economist at Halifax said, “This year’s slowdown in the pace of UK economic growth and the historically high level of house prices relative to earnings are expected to curb the recent improvement in housing demand and prevent a marked pick-up in prices”.
There are several indicators which suggest that the market is recovering from the slowdown which kicked in the summer of 2004 such as:
• Number of Mortgage approvals for house purchase rose to the highest level in September since last year which can be seen as a positive indicator for future trends.
• Also the Inland Revenue figures show a 16% growth in the number of properties sold between the second and third quarters of 2005.
Analysis of Factors behind Growing Demand
The market for the houses occupied by the owners is very responsive to the changes in market demand and supply. The potency of these factors many times explains the difference in the house price inflation between and within the major parts of the United Kingdom. Demand situations for housing affect both the eagerness and capability of the people who are interested in purchasing the new houses. Some of the most important conditions of demand are listed below:
Growth of real incomes:
One of the most important factors that affect the demand of the houses is the growth of real income of the people. Privately owned housing is good enough for most people. As the living standard of people rises, the totals demand for housing increase. Many people also start purchasing expensive properties, as they want to move up market.
Consumer confidence
Confidence plays a very important in the housing sector. If prospect for the future performance of the economy start declining and people become less enthusiastic or eager about their own monetary circumstances, they might have to restrain their choice for the new home they wish to purchase. Many people also change their mind of buying new houses and delay their entry into owner –occupied sector. When the countries economy is enjoying stable growth and increasing prosperity, it raises the number of people who are interested in buying homes and shifts the balance of power in the market towards the seller if many properties are not available to purchase.
Jobs:
Purchasing a house is a long-term procedure. It involves making long-term commitments through a mortgage lender. Any changes in person’s employment affect his ability to purchase a house, which in turn severely affects the power of demand of the houses. In areas when unemployment remains continuous above national average, average incomes of people are lower and confidence among buyers also very less which decreases the price and demand of the property.
These three factors, incomes, employment and confidence play crucial function in determining the direction of house prices. When these three factors are increasing the conditions are usually in place for sharp growing movements in prices. However there are other economic variables also come into play.
Expectations of future price movements
Housing can be considered as a consumer long-lasting good that provides a stream of services to the holder over a long period. Many people also think a house purchase as a major financial investment, which will provide them with enough profit in the long run. The answer is mix of both of them. As owner can stay in the house as long as he wants and later house can be sold out with big profit. Sometimes owners use the same money in buying some other big house for the future incomes.
Taxes and Subsidies:
There have been many changes in taxing and subsidies regulations in the past few years by the government. Rules and regulation made by government affects housing services in a countless number of different ways ranging from advantages for council taxpayers on less income to the fees of stamp duty on the most costly properties. During most of the 1980’s and 1990’s homebuyers were offered an open subsidy in the profile of mortgage interest relief at source by the government, which was also known as MIRAS. Unfortunately nowadays, MIRAS is not considered part of the system. The effect has been to reduce down demand of the houses, but it couldn’t do much to stop the rise in the prices of the houses.
Buy to Let Mortgages:
Another method, which was used, is Buy to Let Mortgages. According to the Council of people to lend money, lending to “buy-to-let” financier reduced 18 percent between the opening and closing half of 2004 – compared with only a 3 percent reduction for owner-occupied buyers. Many mortgage companies suffered losses, as 50 percent of the investors were unable to pay their mortgages. Many investors thought that they would be able to rent their properties and will be able to gain 15 or 20 percent profit, but unfortunately that didn’t work out and most of the investors were left with the mortgages loans.
Tags: building societies, economic growth, halifax, house prices, house sales, price inflation, slowdown
