Question

Housing supply and demand is an example of the effects supply and demand can have on price elasticity. The most recent housing boom from 2000-2005 was not only a boom in housing prices, but also in-house construction.

Based on your readings, there are a number of factors that determine housing prices. Some are based on economic theories and some are based on more intangible factors. Describe the key economic factors which effect housing prices and how they are determined (Home Guru).

Answer 1

Key factors which affect housing prices are:

• Consumer income level (higher the income, higher the demand, higher the price)
• Cost of construction (higher the cost, higher the listing price)
• Inflation level in the economy (higher the inflation, higher the price)
• Wage rate of labor (same as cost of construction)
• Past returns on investment in housing (higher the returns, higher the demand, higher the price)
• Consumer confidence in the economy (higher the confidence, higher the demand, higher the price)
• Population (more the population, higher the demand, higher the price)
• Interest rate (higher the interest rate, higher the cost of borrowing money for purchasing houses, lower the demand, lower the price)
• Ease of availability of mortgage (more easily mortgage is available, higher the demand, higher the price)
• Features of houses (better the features, higher the demand, higher the price)
• Rental rates (higher the rental rates, higher the demand for own housing, higher the price)
• Location of house (better location, higher prices)

Thus, these are some of the major economic factors which affect housing prices.