Factors Causing House Prices to Rise
Is a Boom in the Housing Market Beneficial?
Generally speaking, over the past 10 or so years, prices in the
housing market have been rising. Between 1985 and 1989 the housing
market was rising at a rapid rate, with two consecutive years having a
20% increase on the previous year. However, 1990 saw an incredibly
large decline in the prices in the housing market, percentage change
went from a 35% increase on the previous year to 0%. Between 1990 and
1995 house prices were no longer rising. This changed again in 1995
and house prices are rising again. Many of the years have experienced
a percentage increase on the previous year, although there are years
when house prices rise only at a slower rate. The year 2000 had a 15%
increase on the previous year, however 2001 decreased to an increase
of 5%. Although the percentage has decreased by 10%, prices are still
rising at a percentage of 5%. For example if a house were valued at
£200,000 in 1999, by 2000 it would be worth £230,000, a difference of
£30,000 because of a 15% increase. In 2001, the house would be worth
£241,500, a difference of £11,500 because there was only a 5%
increase.
House prices are simply increasing due to an increase in demand.
However, an increase in demand is caused by a number of factors. The
first is due to decreased interest rates. With less extra money people
have to re-pay to the loan companies, the amount of new borrowing will
undoubtedly increase. Young couples especially are going to borrow
from new loans, due to their lack of finances. An increase in
borrowing means more people have an increased access to money in the
form of mortgages. Therefore demand for housing will increase due to
this increase. Also additional borrowing onto an existing sum of
borrowed money has increased, as people are borrowing against the
rising value of their homes. Like house prices, mortgage equity
withdrawal is increasing. Between two different periods in 2000 alone,
The housing market is very unique as unlike other goods and services, houses have permanence, it is a fixed location good causing the rules of supply and demand to be taken to new extremes. In the case of the Toronto housing market we can view in almost real time the role supply and demand play on he ever increasing house prices, additionally the fundamental economic issue of scarcity is made extremely apparent by the limited size of the city of Toronto.
area, and I felt it would be a good idea to gain the knowledge of the
While homes were primarily owned by upper class Americans during 20s, the 2000s gave rise to
drops increasingly low. Houses are built with cheaper, less expensive materials and are built with the same model of construction
Private problems are troubles which negatively affect individuals and their immediate surroundings. When these troubles go beyond the personal environments of the individual and impact on the community, they become public issues (Bogue, 2009).
“The housing market will get worse before it gets better” –James Wilson. The collapse of the United States housing market in in 2008 was one of the most devastating moments for the world economy. The United Sates being arguably the most important and powerful nation in the world really brought everyone down with this event. Canada was very lucky, thanks to good planning and proper preventatives to avoid what happened to the United States. There were many precursor events that occurred that showed a distinct path that led to the collapse of the housing market. People were buying house way out of their range because of low interest rates, the banks seemingly easily giving out massive loans and banks betting against the housing market. There were
Compare and contrast the ways in which housing inequalities are discussed from the perspectives of social policy and criminology, and economics (TMA 02)
The real costs of home ownership Because of the high prices of homes in the United States, people often focus on only the buying price when considering the costs of owning a house, and neglect many other aspects of home ownership. A house is not your regular item that you buy, store or use for a limited amount of time. Houses come in a package with upkeep costs and taxes, and it’s wise to take these into account when analyzing your finances. The average cost of a house is estimated to be around $200,000 in 2013. As such, it’s no wonder people are distracted by such a significant amount and overlook other aspects.
All good things must come to and end. In late 2005, the housing bubble burst, and housing began to decline in price. People who refinanced, particularly those who financed with variable interest rates suddenly found their homes were valued at much less. The housing market became flooded with homes for sale, because the homeowners with variable rates and interest only loans could not continue to make their payments. (Greenspan) The rise in the number of homes for sale caused further lowering of home values.
“One out of every two hundred homes will be foreclosed every month, making 205,000 new families enter into foreclosure,” Mortgage Bankers Association. The housing industry in the United States is undergoing an unfortunate crisis. There are way too many homes being foreclosed, which cause a ripple of problems.
Americans on average, save less than 1% of their after-tax income today compared with 7% at the beginning of the 1990s. U.S. citizens are saving less because, of the higher cost of housing and interest rates. Many homeowners believe that rising real estate values give them the necessary savings they would otherwise have set aside. The housing boom, like the stock market boom before it, allowed Americans to save without having to reduce consumption. As the value of their assets rise, people naturally feel richer.
Affordable housing in the United States describes sheltering units with well-adjusted housing costs for those living on an average, median income. The phrase usually implies to applied rental or purchaser housing within the financial means of lower-income ranges specific to the demographics of any given area. However, affordable housing does not include those living in social housing owned by government and non-profit organizations. More specifically, the targeted range for housing affordability sets below 30 percent of a household's annual income, including all applicable taxes, utility costs and home owners insurance rates. If the mean income per household breaches the 30 percent mark, then the agreed status becomes labeled as "unaffordable" by most recognizable financial institutions.
Like with any other commodity or resource the market for rental property is affected by supply and demand. “When we break the market for land into markets for uses of land, then the supplies are not fixed, and prices and profits function as they do in any other market.” (Microeconomics 396) When analyzing the housing bubble it is important to understand that the rental real estate market is not necessarily affected in a negative way. “The term bubble means that the price of an asset is being bid up through speculation or gambling rather than because of the value of the services the asset returns.” (Microeconomics 396) Often times the housing bubble deals with speculative real estate which is in a fluctuating market. For example, housing which is located close to resort areas will change value dramatically with the change of the affects of the bubble. One of the constant factors of the real estate market becomes the average price rental market which may actually see an increase in demand when higher priced real estate becomes unattainable. ...
Financialization is a complex process that labels global finance as the dominant force that drives all economic and political bearings. In order to understand this concept and the process of how financialization works, this essay will evaluate and assess how the collapse of the housing market led to the fiancial crisis in 2008. According to Economic Geography a contemporary introduction, financialization “is when all sorts of things are transformed into financial instruments for trading among individuals and firms in the international capital markets. Through financialization, fixed properties such as housing are financialized into structured investment vehicles such as mortgages—back securities that can be easily traded among global investors through a variety of financial institutions” (Coe, Kelly, and Yeung, 2013). Trading mortgages, or shares at the global level proved to be a financial disaster for many involved. Ultimately the collateralized debt obligation market collapsed and thus dragged down the entire global financial market.
Price elasticity of house demand measures the sensitivity of price of houses due to changes in their demand (Pascal 1967).