In this essay, I will examine the factors that determine the price of houses in UK housing market. Firstly we will have a look the past and the recent history of UK housing market.
The UK housing market has been booming in the past few years, with prices rising much faster than household incomes. After its dramatic crash in the early 1990s, the UK housing market has staged a remarkable recovery.1
In the early 1980s widespread financial deregulation raised the availability of mortgage finance and stimulated the demand for housing. Real house prices rose by over 4½ percent per annum on average during the decade, with nominal house price inflation peaking at 28 per cent in 1988. Monetary policy was subsequently tightened in the late 1980s as inflationary pressures began to emerge in the wider economy, with mortgage interest rates rising to over 15 per cent in 1990. This helped to push the economy into recession, and the housing market weakened considerably. Nominal house prices fell by around 7½ percent between 1990 and 1992, the first such decline for nearly forty years. The recent downturn is notable not only for the depth of the decline in real house prices, but also for its relative longevity, with real prices falling by an average 6¼ per cent per annum from 1989 to 1994 and by a further 2½ per cent in 1995.2
In equilibrium the price paid by consumers for the flow of services from the housing stock, the real rental price of housing services, should equal the real user cost, which is the opportunity cost of investing in those services. Under the dual assumptions that both the quality and quantity of the housing stock are fixed in the short-term, real house prices must adjust to ensure equilibrium.2
The market value of some people's houses fell below the amount of their mortgage. When home owners cannot repay their mortgages by selling their properties, they fall into what is known as 'negative equity'. Unable to meet monthly mortgage payments,... [continues]
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(2011, 06). The Uk Housing Market. StudyMode.com. Retrieved 06, 2011, from http://www.studymode.com/essays/The-Uk-Housing-Market-721967.html
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"The Uk Housing Market." StudyMode.com. 06, 2011. Accessed 06, 2011. http://www.studymode.com/essays/The-Uk-Housing-Market-721967.html.