a) The demand for house purchases is determined by a number of factors including:
¬ Price – if the average house price rises faster than the average income, the demand for houses is likely to decrease. This is because people can no longer afford the higher priced mortgage repayments which will be the result of buying a house that costs more. Houses also become less affordable for first time buyers. There will be a contraction of demand shown by a movement along the demand curve to the left.
¬ 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
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Mortgages tend to run in line with interest rates and therefore, if interest rates lower, mortgages will be more affordable and demand for house purchases is likely to increase.
¬ Consumer Confidence / price expectations - If the general price level for houses is falling, consumers will delay purchasing a house because they expect the trend to continue. This will result in a fall in demand for house purchases in the short term. Demand will also fall if consumer confidence is low. This may be due to instability in the economy which results in consumers reducing their spending due to a fear of hard times ahead.
¬ High economic growth and falling employment will result in a higher proportion of the population having higher incomes so demand for house purchases is likely to increase. Houses are normal goods with a high income elasticity of demand meaning that when incomes rise, the quantity demanded increases by a larger proportion than the change in income. Demand for house purchases is also likely to increase because people with higher incomes are likely to switch from renting to purchasing a house or may even invest in a second home.
b) The supply of houses for sale is determined by a number of
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This will be due to prices rising so high that mortgages become unaffordable for first time property buyers and people with mortgages being unable to make their repayments because wages aren’t rising as quickly as mortgages. This will also be the case if interest rates rise; driving up mortgage rates and encouraging people to save their money rather than spend it. Consumer confidence is also likely to fall resulting in a further decrease in demand for house purchases and there is a risk that supply may suddenly outweigh demand resulting in even lower house
This case study examines various real estate contracts – the Real Estate Purchase Contract (REPC) and two addendums labeled Addendum No. 1 and Addendum No. 2 – pertaining to the sale of 1234 Cul-de-sac Lane in Orem, Utah. The buyers in this contract are 17 year old Jon D’Man and 21 year old Marsha Mello; the seller is Boren T. Deal. The first contract created was Jon and Marsha’s offer to purchase Boren’s house. This contract was created using the RESC form, which was likely provided by their real estate agent as it is the required form for real estate transactions according to Utah state law. The seller originally listed the house on a Multiple Listing Service (MLS); Jon and Marsha agreed that the asking price was too high for the neighborhood (although we are not given the actual listing price), and agreed to offer two-hundred and seven-thousand dollars ($207,000) and an Earnest Money Deposit of five-thousand dollars ($5,000). Additionally, the buyers requested that the seller pay 3% which includes the title insurance and property taxes. After the REPC form was drafted, the two addendums were created. Addendum No. 1 is from the seller back to the buyer, and Addendum No. 2 is the buyer’s counteroffer to the seller.
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.
“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
This is what we see with housing; rental and owner-occupied housing serve as substitutes for each other. Returning to the rent/price ratio, it trended back down in 2013 and remained flat going into 2014. A downward trend indicates that the economy or market – depending how one is reviewing the data, either for the economy as a whole or in a specific geographic market – is not fully supportive of home ownership and that there is more value to renting. Conversely, an upward trend supports home ownership over renting.
House prices have been affected by the number of people who buy houses to rent out and this has had an impact on younger people wanting to buy homes. Thus, the term ‘generation rent’ has come to the forefront in recent years. In A Century of Home-ownership and Renting (The Open University, 2016) census data presented supports the claim for the use of this term. In the video, they mention levels of home-ownership dropped for the first time since records began. From 69% to 64% in the space of 10 years and the percentage of households privately renting has been on the rise. 11% in 1981 compared to 18% in 2011. In addition, house prices have risen faster than previous years and banks have also restricted lending. These factors have all lead to more people not being able to afford a home of their own, especially at a younger age. So, as house prices rise this benefits the home-owners and allows them to gain more wealth and capital. The distribution of wealth has been affected by changes in these markets. There is evidence to support this claim. Table 3.5 (Investigating the social world 1, chapter 3, p. 96) shows wealth distribution in Great Britain from 2000 and 2005. The table shows results for housing wealth distribution amongst other things. It’s important to look at the look at the lowest and highest percentiles to look at any
Mortgage Costs Most people that decide to buy houses do so by applying for loans. There are two distinct types of mortgages and loans. The first type implies fixed rates. The advantage of this type of mortgage lies in the fact that you know ahead of time what you’ll be paying monthly. The disadvantage is that while your debt decreases over time, the monthly rate you have to pay remains the same.
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
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.
In contrast, one of the negative impacts of gentrification is the fact that the cost of living is likely to rise. Property prices and rents may go up, pushing tenants out of the areas they had inhabited for years. Those buying houses may evict the inhabitants to move in themselves or rent the houses out to new arrivals who will be willing to pay the high rents being charged. D.W. Gibson notes that residents who own houses may also decide to take advantage of the rising property prices, sell their houses, and move out (Gibson). The culture and character of a town will slowly be transformed and lost
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. Keep in mind that the main reason for the mortgage crisis is the high number of defaulted home loans, which triggered foreclosures and sell-offs.
...our weeks ago it was down to 5%. It is now currently 5.24%, which is a big jump for only four weeks. Mortgages are through banks, so that is money they are losing since it is so low right now. Credit card interest rates need to drop so mortgages can get back to where they were. It is more expensive for the people, but it would compensate for credit cards.
Buying and owning your home is part of the American dream. Although the dream itself has since changed, the home still remains the main focal point. Today owning a home doesn’t necessarily mean a house. People now buy duplexes, cooperative apartments, and condominiums. For some families it could take up to a couple of generations before it’s able to have the capabilities of buying a home. To many people it means a certain achievement that only comes after years of hard work. It is a life altering decision and one of the most important someone can make in their lifetime. The reasons behind the actual purchase could vary. Before anything is done, people must understand that it’s an extraneous process and it is a long term project.
Most people, today, are looking forward to buying their first property. When individuals decide to buy a house those individuals would have to look at all their options and all the advantages and disadvantages that come from purchasing a house. The economy plays a huge role in the decision whether people will purchase a house, purchase a condominiums, or rent property.
When do we begin to make a decision on our dream House? After, living in a large house we need to make a decision on the right time to down size. We knew we needed less space. So we made a decision to begin our search. With great excitement we have begun looking thru differ books with house plans in them. We were in shocked there were so many plans out there to look at and so many styles. There’s so many decisions on what we think would be a dream house. How many floors? How many rooms? How much space do we need? What do we want the design of our house to look like? Where do we want to live? Do we want a brick house, wood house or vinyl siding house? There were days that we realized we could not wait to begin our new journey. We could not wait to get into our dream house.
Each product (house) is unique in terms of buildings, location, and financing, thus the market has heterogeneous products (Acton et al. 1999). Transaction costs are high and the process is usually long. Though there are mobile homes, but the land underneath is still immobile, real estate is an immovable asset (Acton et al. 1999). The main factor that affects demand in the real estate industry is demographic features. Demographic variables include population size and growth, cultural background, beliefs and religion (Acton et al. 1999).