CASE STUDY

A case study on the Recent Development in the UK Housing Market



Recent developments in the UK housing market

Answer 1) In late 2008, UK property market show decline trend in prices. However, the property prices in the UK expected to fall by 2% as estimated by RICS, an international association of professional's real estate. At least during the first half of 2011, the average housing prices continue to fall in following months, due to the decline in supply which have resulted in stabilize the market with prices that started to increase during the latter part of the year. London and South East, however, have followed a positive trend in real estate prices (www.propertywire.com).

In early 1990 the prices of UK house started to fall due to the global crunch faced by the entire world. These prices recovered in 2010, nevertheless in 2011 UK faced this trend again and constant trend towards the weak housing market. According to the analyst, average house prices have been enhanced to 0.1% over the year to February 2012, to £162,712. According to the house prices in UK declined to February by 1.9% from a year earlier, to £160,118 (Adair A., Berry J., Haran M., Lloyd G., McGreal S., 2009, pp.5).

The main features that UK housing Market increased were:

A positive trend in over the past year in house price growth

A steady downfall in prices in the south

Significant price falls experienced by the Midlands and the north

The regional differences in the behaviour of UK house prices over this period were fairly similar. This doesn't mean that some regions experience greater increase and so later experience a fall, nevertheless the pattern was an increase in string growth complied by rapid fall. This was frequently experienced across the UK. For instance, in the case of Northern Ireland and Scotland the enactment and reduction was much close to the national average. But in US, the situation was different, they experience an opposite trend comparison to the UK (Willcocks G., 2009, pp. 403).

The Figure 1 indicates House Prices, % change 2006 to 2011 in which prices has been following down since 2006. The figure 2 indicates average price which has been increasing since 2000. This shows that housing prices has been increasing due to shortage of houses and due to macroeconomic indicators.

Figure 1: House Prices, % change 2006 to 2011

Source: OECD

Figure 2: Average House Prices

Source: Nationwide

Answer 2) UK house price behaviour relative to the general inflation has experience substantial rise when inflation was low. In UK, a further main aspect contributing in inflation rate fall during 2008 - 2009 were due to the reduction in VAT which was 15% from 17.5% which was brought in for stimulation consumption purpose. As RPI comprises of costs of housing which was pessimistic due to consecutive reduction in rate of interest which means payment of the mortgage would be lower.

Nevertheless, inflation falls was for shorter duration. VAT returned 17.5% in early 2010 and again it was increased in the following year ...