Question

In 2017 the housing prices in the UK are rising much more slowly than in the previous Years. In 2014 & 2015 the housing prices rose by averagely 9%. The fall in the housing price is linked to higher inflation and slower wage growth, interest rates growth. Comment on your view why macro factors affect the Housing Prices. Why are housing prices of rising less rapidly than previous? Use demand /Supply diagram to explain your reasoning.

Answer 1

Macro economic factors have great impact on the price levels as they have a significant role to play in the state of the overall economy. The housing process influence the price of products and services in all the industries associated with it and also determining the overall demand. The major macro economic variables like GDP, inflation rate, interest rate, funding are major determinants of housing price level. When the GDP is high, there is an improvement in the economic status of the country, better performance leading to an increase in the demand and increases prices. This will increase the prices of housing as well. When there is an increase in the inflation rate there will an increase in the general price of goods and services and also housing prices. When the interest rate increase, housing prices reduce because people go for the alternative of renting houses because the interest on mortgage will be high. Availability of funds is another important factor that affects housing price, as loans are needed for building these houses. employment also has an indirect effect on housing price level. When more people are employed, the wage rate increases, the consumers purchasing power increases, and demand increases as well. This increase will demand will be associated to housing demand as well. When the demand for houses increases, the price increase as well

Housing market pricing can be explained by the demand and supply curves. When the demand for housing is high but the supply is low then the prices will rise. When more housing facilities is available, the owners will reduce their prices as the demand is less.

The demand curve for housing is a downward sloping curve, and the supply curve is upward sloping curve. The price for housing is determined at the intersection of the demand and supply for housing. At P0 price, Q0 housing will be demanded in the market