HOUSE PRICES IN FREE MARKETS

House Prices in Free Markets

House Prices in Free Markets

Introduction

The housing market in the UK is under many of force because of the detail that the UK finances is under inflation and certainly expanding concern rates on the mortgage. The foremost components leveraging are inflation, concern rates and the earnings of the people. Though there are other components that sway the housing market in the UK they are not as productive as the inflation and the concern rates. The concern rate has gone up in the last couple of years. According to the bank of England's facts and numbers a mean homeowner is giving £135 additional in the direction of their mortgage fee in evaluation to last couple of years which is about 20% higher than two years ago. The expanding concern rates have initiated a foremost smash into in the UK's present economy. As per the present position a middle class family would not be adept to pay for a mortgage fee if this continues. As an outcome of this numerous persons might have to misplace their homes. This paper will trial to interpret the foremost components that work out the housing market in the UK and show the details and numbers of the latest housing market in the UK. (Financial Times)The components that are nearly associated to the smash into of housing market in the UK are as follows:

Inflation: Inflation is defined as a rise in the prices of goods and services, as happens when spending increases relative to the supply of goods on the market. For example, the 2.2% inflation in the UK in Jan, 2008 means that the prices on an average are 2.2 % higher than Jan, 2007. The present inflation in the UK economy is shown below. The consumer prices index inflation in January 2008 is 2.2% has gone up by 0.1% compared to December 2007 which was 2.1%. However retail prices index inflation is 4.1% in January 2008 compared to 4.0% in December 2007. (www.statistics.gov.uk)

Due to high inflation in the economy, interest rates went up on the mortgage which in turn created bourdon for the people in terms of paying the monthly payments towards their mortgages. Due to the increase in the interest rate most of the new home buyers who wish to buy houses in turn stated waiting until the interest rates came down, because of which the demand for the houses decreased day by day. On the other hand most of the home owners wanted to sell their houses at a higher price in order to get more equity on there house so that they can manage to payoff the mortgage. However this situation worsens the housing market by creating surplus houses in the market. The reason for surplus was that the new buyers did not want to buy the houses because of the fact that the interest rates where high and also the prices were coated high. This situation is plotted on graph below for better ...