...analysis of the key macro and micro economics factors which impact on the current UK housing market Introduction This paper explores the current situation in the UK housing market. Fundamentally, the paper argues that the current situation in the housing market is a legacy of the way in which the housing market developed over the early 2000s into the 2007 and 2008 financial crisis. As the fall out from this crisis has taken two or three years to properly be felt it can currently be said to be exerting a major influence on the way the housing market in the UK is working today. The paper therefore places a major focus on developing an understanding of how the financial crisis occurred and the impact that this had on the UK housing market, in order to understand the key factors which are shaping the housing market today. The paper begins with a look at the state of the UK economy at the moment. This is only examined in brief but provides a key background to the work. This is then followed by a look at the UK economy and the housing market and how the two link together. The following section is the major section of the work as this focuses on the macroeconomic factors which have shaped the housing market. This section in particular focuses on the legacy of the housing market developments of the early 2000s. The following section briefly explores the microeconomic elements which have shaped the housing market – the major emphasis here is on the role of buy to let mortgages as a means of...
Words: 3404 - Pages: 14
...Purchases and the Economy Jose Velasco ECO/372 November 9, 2015 Matthew Mulyanto Product Purchases and the Economy Macroeconomics is a helpful resource for enabling understanding of factors that affect shifts in supply and demand and pricing of products. Macroeconomics can provide an understanding, for example, of how indicators such as inflation and interest rates can reflect the state of the economy, revealing its relative strengths or weaknesses. Information such as this can be extremely useful in determining whether one should buy a product such as a home, which would necessitate a mortgage and monthly payments. Economic Indicators and the State of the Economy Two economic indicators that reflect the strength of the economy are the inflation rate and interest rates. A stable and low inflation rate, for instance, is viewed worldwide as a necessary means to keeping the economy strong. Banks worldwide, including the U.S. Federal Reserve, the Bank of Japan, and the European Central Bank have published directives stating their primary objective for monetary policy as being “to maintain price stability” (Federal Reserve Bank of San Francisco, 2006). Others, such as the Bank of England, the Bank of Canada, and the Central Bank of Chile, have a similar goal to “keep inflation low and stable” (Federal Reserve Bank of San Francisco, 2006). Maintaining a stable inflation rate allows governments to strengthen their economies by ensuring that...
Words: 1204 - Pages: 5
...Introduction The real estate market, like other markets, is subject to the pressure of supply and demand. When speculation runs wild, prices can inflate rapidly. This is a "housing bubble." The danger in this situation is that the market will not be capable of sustaining the inflated prices, so the value of properties begins to come down, sometimes rapidly. Definition of a Housing Bubble * A "housing bubble" is a cyclical economic event where high trade volumes inflate prices, which ultimately become unsustainable, causing a lowering, or "crash" in values. Economic bubbles may be called by a variety of terms, including a speculative bubble, a market bubble or a balloon. Economic cycles of this nature are not exclusive to real estate. They have occurred throughout history in a variety of markets, including stocks, tulips and pottery. Contributing Factors to Unstable Housing Conditions * It could be argued that a housing bubble is really an example of a credit bubble. Although real estate is the underlying commodity, most house buyers use credit -- in the form of a mortgage -- to secure the property. Lax lending guidelines, rapidly inflating values, speculative buyers and the use of adjustable rate mortgages (ARMs), which can adjust to higher rates, are all factors in accelerating the likelihood of borrowers defaulting on their loans. The Effect a Housing Bubble Has on Local Markets * Tighter credit is likely to result after a housing bubble bursts; and although...
Words: 3460 - Pages: 14
...three countries or economies that have housing policies or measures to stabilize the housing markets. Provide your views or suggestions on the best measure to stabilize the housing markets that could be considered or used in Melbourne. In 2013, Melbourne’s population was 4.3 million. By the year 2030 Melbourne’s population is set to reach 6 million and by 2051 the population will jump to 7.8 million. With population growth of this magnitude the demand on housing will undoubtedly increase. In 2014, in his opening remarks at the Bundesbank/German Research Foundation/IMF Conference, Mr Min Zhu, Deputy Director of the International Monetary Fund (IMF) stated remarked: “Housing booms have different characteristics across countries and time periods. What is common is that when the bust comes, it very often damages financial stability and the real economy. The tools for containing housing booms are still being developed. The evidence on their effectiveness is only just starting to accumulate. The interactions of various policy tools can be complex. But all this should not be an excuse for inaction. The interlocking use of multiple tools might overcome the shortcomings of any single policy tool.” Indeed, as there are no magic bullets to ensure a stable housing market, it is prudent to therefore to review differing policies that are currently used by other countries to help stabilize their housing markets. In the paragraphs bellows are housing market policy examples or...
Words: 4885 - Pages: 20
...According to Wikipedia a housing bubble is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in valuations of real property such as housing until they reach unsustainable levels and then decline. Four years into the housing bubble downturn, much of the country remains hopelessly confused about what happened, why it happened and who is to blame. In my research paper I will try and demonstrate what a housing bubble is, some of the reasons for the bubble, was it preventable, how it kept growing, how it burst and how it has affected our economy. By definition a housing bubble is a temporary condition caused by unjustified speculation in the housing market that leads to a rapid increase in real estate prices. As with most economic bubbles, it eventually bursts, resulting in a quick decline in prices. The end of a housing bubble is hard to predict given the fact that economic conditions can change without warning. If a housing bubble swells to an extremely high level, the aftermath of a burst may set the housing market back years. There is little consensus as to the cause of the housing bubble that precipitated the financial crisis of 2008. Numerous explanations exist: misguided monetary policy; a global savings surplus; government policies encouraging affordable homeownership; irrational consumer expectations of rising housing prices; inelastic housing supply. Some explanations...
Words: 2914 - Pages: 12
...a crash in our economy for enough quarters that led to a recession. We are currently trying to get our economy boosted and headed in a positive direction. The biggest problem people have is they do not know what caused this to our economy. It started with a housing crisis and ended up causing our economy to head in a bad direction. The finical crisis which started in 2007 was caused by many banking issues that left investors and banks in debt because people didn’t pay back their loans. Since a lot of loans and housing loans were being given out at a rapid pace and once these loans couldn’t be paid back it led to a lot of problems in our economy. The finical crisis was started by a housing market crisis which left a lot of banks evicting and foreclosing properties which left the banks in a bad position which led to the government having to bailout banks. This crash with the housing market caused values of securities tied to pricing to decline. “Beginning in the early 1990s—in order to enable more Americans to buy homes—the government began to press housing lenders such as banks and the movement sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to reduce the requirements for a mortgage so that more Americans would be able to buy homes.” (Wallison, 2010, pg397-406) The government’s idea to get Americans to buy more homes was something that backfired on them. They wanted houses sold at a rapid pace begging it would stimulate the economy. The housing market was doing very well...
Words: 1575 - Pages: 7
...Beijing’s Economy After I reading the article of “Strategic Management of Places”, and I know there are six dimensions of organization and special structure. The first dimension is that monopoly firms processing market power. The second dimension is that many firms are in the situation of competitive markets. The third is that many small or middle entrepreneurial startups also promote the economy of that region. The forth one is that specialize one field and take advantage of this field scale to reduce the transaction expenditure. The fifth dimension is that the region should have the diversity. And the last dimension is that cluster is very important. Although, not all these dimensions exist in one place, they still play an important role for the economy development for a place. And the place of interest I would like discuss is mainly focus on Beijing. Beijing is the capital city of China, which leads the Chinese economy. And now I analyze how Beijing housing policy could benefit from its organization and spatial structure. 1. Market Power a. I mentioned my policy in the last paper. The affordable housing policy is refer to the Chinese government organizes the real estate enterprises and some offices, which collect funds for cooperation housing-building to use the lower price than the market price of housing to sell to a median or low income families. So, the government made this policy, and made the price decision in the market. (Lower than the market price). Although...
Words: 610 - Pages: 3
...real estate market in the decade. However, we do not see any slowdown in these cities. As of today, the property prices seem to keep on growing forever. Will China’s housing bubble pop? Compare the housing bubbles in the United States with that in China * A brief background information about the housing market in US before it crashed down * Elaborate on China’s current housing market and see how close is it to the housing market condition in the US Different views on China’s housing bubble * Optimists think that even if the housing market crashes down in the near future, it will not create another global financial disaster * Some think that the bubble will never crash under the guidance of our communist party * Some debate on the implementation of the new policies Conclusion: China and the world have to learn a lesson, and try to maintain a healthy, long-term economic sustainability. Will China’s housing bubble pop? Is it just merely a matter of time when the housing market comes to a crash, or will it not at all? Should a burst of the bubbles cause another worldwide economic downturn and probably a global recession? These are probably the most heated debates by the economists of the world today. The soaring property prices in China’s coastline and major cities such as Beijing, Shanghai, Shenzhen, and Dalian with a mortgage to average household’s annual income ratio of as high as 35% has formed the biggest bubbles in the real estate market in the decade...
Words: 1254 - Pages: 6
...the Economy Scott Miller English Composition 1 October 18, 2008 Outline: The influences of Alan Greenspan on the Economy -About the Federal Reserve 1. Year Alan Greenspan appointed. 2. Duties of the Federal Reserve -Alan Greenspan as Federal Reserve Chairman (1987) 1.Stock Market crash -Savings and Loan Crisis (1988-1982) 1. Bank Failures 2. Recession -Economy Growth(1993-2000) 1. Dot.com ere 2. Federal Surplus 3. Millennium 4.Clinton Era -(2001), and beyond on the economy 1.President Bush 2.9/11 3.Recession 4. Dot.com bubble 5. Housing boom and bubble -Conclusion(2006) 1. Greenspan Retires Alan Greenspan was the Federal Reserve chairman for the last nineteen years he was the longest chairman in that position. Alan Greenspan was first appointed by President Ronald Reagan in 1987 and retired under President Bush in 2006. The chairman of the Federal Reserve is appointed every four years by the president, and then the Senate. The Federal Reserve is in charge of the financial system in the United States, and is independent part of the government that is not influenced by politics. The duties of the Federal Reserve are to preserve a sound banking system, preserve the power of dollar, print money if needed, and to regulate interest rate policies. Alan Greenspan had massive influence on the economy when...
Words: 1820 - Pages: 8
...Product Purchases and the economy Anthony Norman ECO372 January 25, 2016 Steven Karp Product Purchases and the economy Consumers, such as myself are using more caution when it comes to determining whether or not we should invest in purchasing a new home. There are numerous factors to consider before buying a new home that for example the price and location. I must partake in the necessary research to know what lies ahead for me when it pertains to budgeting and making monthly payments on a new mortgage. The wellbeing of the economy can be a game changer on whether or not I should make such a huge investment as purchasing a new home. Two important economic indicators, which will aid in helping me to determine if buying a new home will be a wise and sound investment, are the interest rates and housing start. Economic Indicators According to Investopedia (2015), an interest rate is the sum charged communicated at a rate of essential, by a loan specialist to a borrower for the utilization of benefits. Interest rates are often shown on a yearly premise, known as the annual rate (APR). The interest rate affects the affordability of buying a home. If the rate increases by 1%, it will have a significant impact on my monthly payment. For example, if I am looking to purchase a home that cost $400,000.00 at an interest rate of 3.0%, I am looking at a mortgage of $1,686.00. If that interest rate were to increase by 1%, my monthly payment would increase by $223.00 with a monthly...
Words: 1457 - Pages: 6
...course I have found out that there are methods and concepts that if implemented correctly the idea of owning a home is still within grasp of many of us but there are many things that need to be weighed before pulling the trigger on such a large and momentous decision. First are the ten principles of economics which I will go into more detail later on that are crucial to making a large purchase be it a home, car, or any other large ticket item that can have ramifications on other aspects of your lives. Next one needs to weigh the marginal costs and marginal benefits of their decision to see all aspects of the decision no matter how minute they may seem. There needs to be an understanding of the state of the current economy as well as the trends that point to where the economy may be going in the foreseeable future so that the timing...
Words: 3015 - Pages: 13
...Urban Housing Markets in China Yongzhou Hou Stockholm 2009 Report 88 Building and Real Estate Economics Department of Real Estate and Construction Management Royal Institute of Technology Kungliga Tekniska Högskolan © Yongzhou Hou 2009 Royal Institute of Technology (KTH) Building & Real Estate Economics Department of Real Estate and Construction Management SE – 100 44 Stockholm Printed by Tryck & Media, Universitetsservice US-AB, Stockholm ISSN 1104-4101 ISRN KTH/BFE/M-09/88-SE ISBN 978-91-977302-5-9 Abstract This thesis focuses on problems of prices and risks in the housing markets of urban China. What drives the dynamics of housing prices across regions is not only of great interest for academic researchers but also of first importance for policy makers. It is also interesting to pay attention to the issue of housing bubbles at a city level and risk allocations from an institutional view. To address the issues, the thesis applies both qualitative and econometric approaches in analyzing the urban housing markets of China. The first paper reviews articles mainly published in Chinese core journals. The existing studies are mainly concerned with such six topics as institutions, policy, land, finance, price and market. The first three topics involve the public housing allocation system reform, such fiscal and monetary tools as tax and interest rate, and the land reserve system. The housing finance treats such subjects of mortgages, bubbles and financial systems...
Words: 7452 - Pages: 30
...are using real estate as one of the most important issues. So, the decision to purchase a home is based on our country’s economy as well as your own. Of course the location of the real estate is a factor as well as the size of the lot and the condition of the building. What would you be willing to trade off or give up for the privilege of being the owner of your own home? What do you get in return for these tradeoffs? Now you must use the principles of economics to figure out some of the answers to your questions. You may have to use what you have available in savings to make a down payment and you may have to work more hours to afford your payments. In the long run you are placing all of those finances back into a type of savings for yourself and your family. These are only marginal changes that you will have to make. They are only small incremental adjustments that would be made to an original plan of action. Some people may find purchasing a new home a frightening experience. Spending your savings, moving into a new neighborhood, can be scary. You must take a look at your finances like a model of the economy of a small country. After weighing these changes and principles it is still an economically sound decision to purchase a home. The state of the economy can affect the marginal benefits or the marginal costs of purchasing a new home. When our economy is strong and healthy people are enjoying more secure employment and higher pay which enables greater...
Words: 1389 - Pages: 6
...The United States housing bubble was an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2012. On December 30, 2008, the Case-Shiller home price index reported its largest price drop in its history. The credit crisis resulting from the bursting of the housing bubble is the primary cause of the 2007–2009 recession in the United States. Increased foreclosure rates in 2006–2007 among U.S. homeowners led to a crisis in August 2008 for the subprime, Alt-A, collateralized debt obligation (CDO), mortgage, credit, hedge fund, and foreign bank markets. In October 2007, the U.S. Secretary of the Treasury called the bursting housing bubble “the most significant risk to our economy.” Any collapse of the U.S. housing bubble has a direct impact not only on home valuations, but the nation’s mortgage markets, home builders, real estate, home supply retail outlets, Wall Street hedge funds held by large institutional investors, and foreign banks, increasing the risk of a nationwide recession. Concerns about the impact of the collapsing housing and credit markets on the larger U.S. economy caused President George W. Bush and the Chairman of the Federal Reserve Ben Bernanke to announce a limited bailout of the U.S. housing market for homeowners who were unable to pay their mortgage debts. In 2008 alone, the United States government allocated...
Words: 838 - Pages: 4
...are number of factors that lie behind these crises in both housing and credit markets. These factors emerged over a number of years. Causes proposed include the inability of homeowners to make their mortgage payments, overbuilding during the boom period, risky mortgage products, increased power of mortgage originators, high levels of debts, bad monetary and housing policies, international trade imbalances, and inappropriate government regulations. In January 2011 The U.S Financial Crises Inquiry Commission reported its findings. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.“ This crisis is not merely seen as the result of the U.S. housing bubble's bursting or the collapse of the United States' subprime mortgage sector. The credit excesses that created this disaster were global. There were many bubbles, and they extended beyond housing in many countries to...
Words: 2117 - Pages: 9
