Firstly, I will deal with the factors which can affect the demand for houses in an economy.In many people’s opinion, the single most important factor which affects demand for housing is interest rates. This belief is held because for most people, the cost of purchasing a house is so great that the only way they can afford to do so is to take out a mortgage from a bank or building society. One of the main conditions that banks and building societies apply to mortgages is that during the course of the mortgage, interest will be paid on the loan. Although it is possible to have a fixed rate mortgage - where the rate of interest which will be paid is fixed at a constant level throughout the mortgage- most mortgages are variable rate mortgages, where the amount of interest which will be paid varies throughout the mortgage [1]. By increasing interest rates, the government can control how much money people have in their pockets. The variance of interest rate can be used to control much of the economy, including inflation. This is known as monetary fiscal policy. Interest rates have such a large affect on the economy because such a large percentage of the population has a mortgage and so is vulnerable to interest rate rises. An increase in interest rates can greatly increase the amount of money that a household has to pay each month. If people without a mortgage who are considering taking one out to cover the cost of a very expensive purchase see that interest rates are high then they are likely to be wary of taking out a mortgage, as they know that they will have to pay a greater amount of extra money each month. Because people may be put off taking out mortgages, they will be unable to purchase a house, so this will cause demand for houses to fall. This is known as a slump in the housing market.
Conversely, if people see that interest rates are low and they are considering the possibility of purchasing a house, they may decide to go ahead with their purchase due to the fact that it will be more affordable- at least in the short run- due to the lower interest rates.
Variable rates will also make mortgagors vulnerable to fluctuations in interest rates as even small changes in the interest rate can have a big effect on the outgoings of those with large mortgages. When rates rise steeply, one likely result is an increase in the number of mortgagors who cannot afford ...
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... of their home being repossessed increases. If a large number of homes are being repossessed, people will be put-off purchasing a house. Also, people who are considering taking out a mortgage will be less likely to do so because they will be less able to afford it due to the fact that they are paying more tax. Both of these effects are likely to cause a slump in the housing market.
Conversely, if tax rates are low the state of the housing market will improve due to the fact that people will feel that they are more able to afford the added cost of a mortgage. However, if they take out a mortgage at a time when tax rates are low, there is always the possibility that tax rates will increase at a later date.
[1]The interest rate is set by the lender, but it is usually in line with the rate set by the Bank Of England, which is turn is likely to respond to changes in the interest rates of the main world banks, most of which are in America.
[2]This is because there is a large labour pool from which to draw replacement workers. However, there are exceptions to this rule, for example people in the professions like doctors and lawyers tend to have a high degree of job security at all times.
As such, people are less optimistic about the future and have chosen to scrimp and save to last through the recession. Therefore, this has resulted in a decline, in demand for houses, (Tapper & Travers, 2009). This has also resulted in a decline in prices. However, the prices can change in the future when the economy picks up, and people become more confident about the economy. To conclude, the point, which affects one’s decision to buy a new home, is never constant, one's financial situation, level of income, and even number of family members changes all the time. For this reason, people will take into consideration different factors when making the crucial decision for or against the purchase of a new house.
dropped 10.9% causing the home market to suffer. Individuals who have subprime mortgagees to finance these less expensive homes are often times forced into foreclosure due to substantial rate changes. In affect, the economy faces acontinuing negative cycle of subprime delinquencies that result in tighter credit and lower home prices.17 A worsening of the American housing market will negatively affect the consumers confidence while at the same time worsening the American economy.18
Demographic factors – if there is an increase in the birth rate, average life expectancy, immigration, and number of divorces there will be an increase in the demand for house purchases as there is a higher proportion of people in the population that
Also, mortgage lenders during this time were not concerned about making loans to borrowers since they observed that housing prices would continue to increase and borrowers would be able to refinance in a few years time and thus the mortgage company would never lose any money (Sebastian, 2008). If the borrower was unable to pay his mortgage; the lenders could always sell the home and off-set the cost of the sale with the original loan amount. This was the common consensus among financial companies, mortgage lenders, and investors. However, like everything else in life, nothing remains the same as our nimble anticipations. Consequently, housing prices started to decline and lenders found themselves in difficulty. Financial companies should
First off the United States economy, in general, needs to improve. Economy is like a domino effect, and now it is hitting the housing industry. Our unemployment rate is up to about 10%. Banks are not prospering like in the past. Tons of Americans are in debt; by the end of 2008 Americans reached a $972.73 billion debt due to credit cards.
According to the time’s article, “Rising home prices allow lenders to be more generous with home financing, which allows even more prospective home buyers to access the market, further driving up home prices.” This statement seems simple but there is a more going on that might not be so obvious. Using a supply and demand graph, this information is revealed to us. When lenders become more generous with lending it leads to more prospective home buyers being able to purchase a home which results in an increase in demand for housing. The supply, in the short-term, remains unchanged. Over the long-term, rising home prices will eventually lead to more home builders building homes. An increase in demand results in an increase in equilibrium price (home prices increase) and an increase in equilibrium quantity (more homes sold). When demand increases we can measure the changes in consumer and producer surplus. According to gr...
More than 30 percent on housing and persistent inequality in housing and employment opportunities has gone down. That has created a significant lower homeownership rate for African -Americans and Latino families. Many people believe that the mortgage rates in America is threating the confidence of homeownership. I strongly believe that statement is true because seeing what foreclosure has done to Americas economy it tends to drain and disrupts a person state of mind of striving and going for what they want. It mentally crushes them which later leads to sorrow and sadness emotionally.
If you do it wisely, owning a home is one of the most beneficial longterm investments you can make, regardless of fluctuating financial markets. Economic whims sometimes can affect its value positively and negatively, or cause you to hit pause on a major renovation or addition, but such storms pass. They also become easier to weather once you establish equity (that word again).
Nothing can make you feel safer than owning a house, provided that buying a home will not result in financial problems of its own. Every year, a new wave of first time home buyers hits the trail in search of their humble abode. There are pros and cons to home buying. Certainly, there is the matter of timing and related financing programs.
The rising house prices are making many young potential home buyers nervous, which in some ways is impacting the social fabric by prolonging marriage and raise family. This also impacts the work ethic balance by promoting capital gains, rental income and other avenues over hard earned wages.
Making the decision to buy a home can be the greatest decision, or the worst decision depending on the circumstances. Being unprepared for the various costs of owning a home can be overwhelming. Obviously, numerous factors influence the buying decision, and often single individuals can't afford the financial obligation or obtain financing to buy a home. Securing enough funds for a down payment stops the dream of home owning for numerous families.
The large mortgage loan amounts in Canadian Commercial banks may be influenced by the low Canadian interest rate, which stayed at 1% for a long time and recently decreased to 0.5% (Table 2). As we know, low interest rate encourage people do more
Owning a home is a gratifying experience; as you reap the benefits of shelter, your mortgage payments and other personal investments in the home build equity, at least in a healthy market. The objective value of those investments depends on the housing market as well as the quality of the investment decisions. Careful planning, prioritizing, and ingenuity can promise a sound return on the investments one makes in a real estate property.
...two aspects, nominal and real, both measuring two different controls. Nominal measures what is considered a “price tag” of a loan, which includes the price of inflation. While real measures the cost of a loan without inflationary rates. From nominal and real rates there are also lowered and raised rates. When the interest rate is lowered consumer spending grows while savings decrease. Spending on items such as housing becomes one of the ways the AD rises. Though AD rises it pulls the economy out lack of spending, but puts the economy into the possibility of inflation. Differentiating from low rates, high rates stop inflation but creates the possibility of recession. High interest rates create a fall in demand for goods and services. This fall of AD puts a stop to spending, borrowing and much more, creating the incentive to save ultimately putting a haul to inflation.
These are the most important factors which affect housing and the property market in Australia. The definition of interest rates according to investor words is “a rate which is charged or paid for the use of money’. Interest rate is calculated by dividing the amount of interest by the amount of the principal. Interest rates in Australia change as a result of inflation and rates of the reserve bank of Australia change. When interest rates are low the demand for housing rises due to the bank being able to lend more people money thus the housing market increases, however when the interest rate rises the bank makes cuts towards the interest rates which means less profit is made on each lo...