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London School of Commerce

Surname : Bascoban

Name : Zohre

Student ID :0459NINI0409

Subject : Analyze the changes in house prices over the last three years and predict

what is likely to happen to the market over the next year or two.

Lecturer : MS. ELLIE SEMSAR

Semester : MBA Semester1 Group 1A

Contents
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1. Introduction......................................................................................................2

2. Changes in House Prices..................................................................................2

3. Housing Price Data...........................................................................................3

4. House Prices in the UK....................................................................................5

4.1. Which Factors are Affecting Demand..................................................?6

4.1.1. Developing Economy and Income................................................6

4.1.2. Changing Rate of Interest..............................................................7

4.1.3. Feeling of Customers ....................................................................8

4.1.4. Lack of Mortgage Finance......................................................9

4.1.5. Expected Future Prices.............................................................10

4.1.6. Population.....................................................................................11

4.1.7. Unemployment..............................................................................12

4.2. Supply Side

Factors.................................................................................14

4.2.1. Short Run Supply.........................................................................14

4.2.2. Long Run Supply..........................................................................14

5. Predicting House Price...................................................................................15

6. Conclusion.......................................................................................................16

7. References.......................................................................................................17

8. Bibliography...................................................................................................19
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1. Introduction
Mortgage system and citizens around the world for many years successfully applied to the
"pay rent" to have such opportunity to bring home as the system is expressed. Based on long-
term residential mortgage loans that can be referred to as the world's mortgage system in
many countries for years successfully used. Such as paying rent in a very short time home
buying model and its dreams into reality in common stock is required. Because of the positive
impact of the system but can be seen within 5-10 years to be a general feature maintains
blood. Just finished a long-term housing loan to real estate available in the event turned to
prevent increases in rent and prices of unfinished housing projects must be given credit.

We cannot estimate the relationship changes between household wealth and consumer
spending. Thus, on consumer spending the equity prices are likely to be a depressing
influence on the current large declines. Correcting this effect in a number of countries can be
strong recent growth in house prices. Combinations of supply and demand factors affect
house prices, for example real income, interest rates, consumer confidence, future price
expectation, speculation e.g. Some of these factors can rise demand for buying house or can
decrease demand for buying house.

In the next section I discuss related changes in house prices. In Section 3 I show housing
price data. In Section 4 l present house prices in the UK and factor of demand and supply
were explained. Section 5 I present predicting house prices and Section 6 concludes.

2. Changes in House Prices

According to the background of lower world equity prices, one of the main issue is facing
policymakers is the viewpoint for consumer spending. It is complex to estimate the relation
between household prosperity and customer expenses. Correcting this effect in a number of
countries can be strong recent growth in house prices. Also the future course of house prices
affects the outlook of consumer spending. It would seem the growth in house prices would
slow down if a continuance of the global economic slowdown. Been completed for new
housing, accumulated inventories is obtained if stock in hand melt continue. Stock prices also
increase may be delayed until melted. This is a year of riding, it is possible. Roughly one year
price increases should not wait for housing prices. New housing arrangement materials may
not be done, and will also become cheaper with the call to end the economic volatility of the
stocks to be taken into consideration to relieve. House prices depend on which seasons we
are, such as, at Christmas and the New Year can be seen changes between -2% and +1.
http://business.highbeam.com/industry-reports/business/help-supply-services.
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3. Housing Price Data

As can be seen from the report, sale prices of standard property for kind of property in
Oxford between November 2008 and November 2009. The next graph shows, the middle sale
prices of property in Oxford. The last graph exhibits, the figure of properties` sold in Oxford.
Sale Prices of Standard Property in Oxford (£000's)

Nov 2008 Nov 2009 Transform

Detached £376,246 £839,279 +123%
Semi £363,517 £300,085 -17%
Terraced £289,325 £273,083 -6%
Flat £203,261 £152,061 -25%
All £311,126 £369,936 +19%

The Middle Sale Prices of Property in Oxford (£000's)

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Nov 2008 Nov 2009 Transform

Detached £305,000 £499,950 +64%
Semi £237,500 £250,000 +5%
Terraced £250,000 £256,250 +3%
Flat £185,000 £140,125 -24%

The Figure of Properties` Sold in Oxford

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Nov 2008 Oct 2009 Transform

Detached 19 21 +11%
Semi 30 65 +117%
Terraced 20 43 +115%
Flat 22 38 +73%
Source: House Prices for Oxford

T
4. House Prices in the UK
o
Some factors are affecting the house prices. That factors should be affect: p

• Location in the UK is one of them. If houses are out of capital city that means
o
demand of house will be down so price of house going up.
f
• Type of neighbourhood.
• Level of floor. Usually old generation prefer down floor.
F
• Property design. This is depending on people and depends on fashion.
o
• Property new or not.
r
• Number of bedrooms and bathrooms.
m

http://www.nationwide.co.uk/hpi/metod_qs.htm. B
o
House prices are affected by combinations of supply and demand factors. When demand
t
increases for buying house, change in demand and shifts to the right, or when supply
t
decreases, change in supply and shifts to the left, price of houses are going to rise, (John,
o
2007).
m
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1.1.Which Factors are Affecting Demand
“When people talk about the demand for something, it means not just wanting it, but also
being able to pay for it.” (Stephen, 1995 p. 2).

1.1.1. Developing Economy and Income

“If the economy is growing rapidly and people`s incomes are rising rapidly thus they are
likely to buy more share.” (John, 2007 p. 45). If consumer cannot afford houses, demand for
housing is going to down. It can be seen from the graph which is below. There is a change in
demand curve and shift right. As a result demand for house quantity fell and new price comes
about as P2. Supply will stay same because income does not the list of the supply.

Graph 1: Demand and Supply Curves for Falling Income

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1.1.2. Changing Rate of Interest

The cost of paying for mortgage repayments is affected by interest rates. It is very significant
for mortgage repayments, Rosmundur (2008). If there is elevate interest rates so consumer
cannot able to pay price of mortgage. Therefore they cannot afford houses. If interest rate is
rising we can say demand for buying houses would reduce. The graph two demonstrates that
the change is in the demand curve and shift left.

Graph 2: Demand and Supply Curves for Increase Interest Rate

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1.1.3. Feeling of Customers

The significant point is how consumer is feeling? If purchasers are optimistic about the
housing market they can afford house so demand for buying houses is going to up. As can be
seen from graph 3 which is below that change in the demand curve and there is a shift right.
The demand is rising from D1toD2. If they are pessimistic buyer; same thing will affect
demand, but in the opposite direction. As a result consumer confidence is important for the
housing market.

Graph 3: Demand and Supply Curves for Optimistic Consumers

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1.1.4. Lack of Mortgage Finance

Another important reason reducing demand for housing is the lack of mortgage finance. In
past such as 1950s, 1960s and 1970s the mortgage finances` availability was rigid.
http://www.uk-houseprices.co.uk/blog.html. Nevertheless, after credit crisis all banks raised
finance; thus mortgage lenders had to cut down their mortgage lending.
http://www.mortgageguideuk.co.uk/mortgages/index.html.

Especially, mortgage lenders want huge deposits. As a result for purchaser it is too difficult to
get a mortgage. If lenders are requiring large deposits this means reducing demand for
buying. It was shown graph which is below change in the demand curve. There is a shift
movement and shift left.

Graph 4: If Mortgage Lenders are requiring large deposits

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1.1.5. Expected Future Prices

If expectation of future prices will rice, purchasers will want to buy house now because it is
better to buy a property now rather than tomorrow. The change in demand curve is shift to
right side. For supplier, thought of future price increase will be a new opportunity to sell their
properties in the future more than today. So they would want to sell their houses in the future,
not at the present. The supply curve is from right to left side and a new price happen where
the supply and demand curves met which is called P2 at the graph below. As can be seen
changes in the demand and the supply because future price expectation is at list both of them.

Graph 5: Supply and Demand Curves for Future Price Expectation

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1.1.6. Population

Population is one of the vital factors that to buy a house. If population increases demand for
product is going to increase. It is not just about the numbers it is also on cultural and social
trends. Particularly in the UK, people want to leave on their own house. In addition
immigrations affect housing market in the UK. As seen on Graph, when population rising,
demand is going to up for buying house thus demand curve shifts to the rightward because
the population factor is only the list of demand, supply will not change.
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Graph 6: Supply and Demand Curves for Rising Population

£260.000
£240.000 S
£220.000
Prices of Houses

£200.000
Supply
£180.000 P2 Demand
£160.000
Demand 2
£140.000 P D2
£120.000
£100.000 D
£80.000
0 10000 20000 30000 40000 50000
Quantitiy of Houses

Graph 7: UK Populations

1.1.7. Unemployment
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When the economy of UK is not successful and condition for business are bad, thus the
demand for buying houses will decrease considerably, because buyer cannot have enough
money to buy a house. As can be seen from graph change is in the demand curve and shift
left. The demand is falling from D1 to D2.

Graph 8: High Unemployment

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Graph 9: Employment and Unemployment Rates

Source: Statistics UK

1.2.Supply Side Factors

The factors affecting supply are mainly the same as those affecting demand, but in the
opposite direction. For example; if incomes rise, people will want to hold their properties.
About future price expectation is that if people believe that house prices are going to fall,
logically they will want to sell them. However, they believe that prices will rise; they are
going to hold their properties.

1.2.1. Short Run Supply

In the short run company cannot able to change parts of productions but the company have
fixed some parts of productions, (David, 2005). The supply of housing is nonflexible in the
short run and to make houses takes time. Thus in the short run prices are affected by demand
and little bit by supply.

1.2.2. Long Run Supply

The long run is a time period long enough for all inputs to change it. Many factors would
influence supplying house prices in the long run, for example:
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• Accessibility of preparation consent. It is hard to get in country region,

• Supplier of houses would have a change to get better cost. They can able to research
many investments.
• Existing houses may be knocked down because they are deemed unfit to live in,
• When prices of building new houses is raising therefore supplier would not build
houses and change in supply shifts to the left.
http://www.houseprices.co.uk/index.html
1. Predicting House Prices
House prices have fallen considerably last 3 years in the UK thus the half part of the year it is
not going to seen any increasing in the housing prices in this year. The fact the economy is
not growing much after the global crisis and at the present UK`s economy is uncertain. It will
take a bit of time means that many purchaser will not buy house as a result is that house
prices slow down. We would consider about falling house prices. The major causes for falling
house prices are difficulty of getting mortgage due to credit crunch, high house price to
income ratios, economic depression and rising unemployment. When house prices are
increasing nobody want to buy. “If house prices fall significantly, they will not just leave
homeowners with negative equity; they will also cause serious economic consequences for
the wider economy.” http://business.highbeam.com/industry-reports/business/help-supply-
services“The Royal Institution of Chartered Surveyors (RICS) (2009) said it expected house
prices to rise by between 1% and 2% during 2010, in line with increases seen this year.” It is
not seem right because we have got stock of houses so house prices not going to change we
should wait approximately one year. The economy still has got some problem for instance;
mortgage lenders are requiring large deposits, population and unemployment. These all make
it difficult to get a mortgage for buyers and the result is that over the year house price is
going to fall down or same.

2. Conclusion

Examines in depth the subject in which many people do not believe that it is: pay the rent of
the house sitting schedule that will own the house or do not have any savings when they
desire to receive any house rent every month and a similar price to that house will have. Such
as paying rent in a very short time home buying model and its dreams into reality in common
stock is required. Supply and demand factors are affecting house prices. As can be seen from
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those factors, the significant factor affecting the housing market is the economy. If the
economy is in a recession, those factors will make a very little disparity on demand or supply
for housing market. Therefore the relation between UK housing market and UK economy is
very strong.

The main reasons for falling house prices are difficulty of getting mortgage due to credit
crunch, high house price to income ratios, economic recession and rising unemployment.
When house prices are decreasing no one demand a house. House prices have reduced
significantly since 2007 in the UK thus the first six months of the year it is not going to
improve. The fact the economy is not growing much after the global crisis and at the moment,
UK`s economy is uncertain. It will take a bit of time.

3. References

Begg, D., Fischer, S., & Dornbusch, R, (2005) Economics, 8th edition, New York: McGraw-

Hill.

Danks, S. (1995) GNVQ Advanced Business, second edition, DP Publication: London

Sloman, J. (2007) Essentials of Economics, 4th edition, London: Prentice Hall.

 Page 18 of 21

Sloman, J. & Hinde, K (2007) Economics for Business, 4th edition, London: Prentice Hall.

http://www.mortgageguideuk.co.uk/mortgages/index.html

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http://www.housingmarket.org.uk/housing/history-of-housing-market/

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http://www.houseprices.uk.net/

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http://www.housingmarket.org.uk

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http://www.home.co.uk/guides/house_prices_report.htm

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http://ecomoimix.blogs.nytimes.com/2009/07/13/
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http://www.nationwide.co.uk/hpi/metod_qs.htm

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http://www.coalters.com/york_letting_agents.htm/

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http://www.houseprices.co.uk/index.html

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http://www.uk-houseprices.co.uk/blog.html

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http://business.highbeam.com/industry-reports/business/help-supply-services

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http://www.statistics.gov.uk/cci/nugget.asp?ID=12
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Gudnoson, R and Jonsdottir G. (2008), House Price Indexes, Approaches and Methods,
http://www.google.co.uk/#hl=en&source=hp&q=House+Price+Indexes
%2C+Approaches+and+Methods&btnG=Google+Search&meta=&aq=f&oq=&fp=a73fa2
ac306dd28e

Accessed on 23 Jan, 2010

4. Bibliography

Adil J.R (2006) Supply and Demand, third edition, First Facts Books

Danks, S. (1995) GNVQ Advanced Business, second edition, DP Publication: London

Fisher B. (2007), The Supply and Demand Paradox: A treatise on Economics, Book Surge

Gillespie A (2001), Advanced Economics through Diagrams, second edition, Oxford

University Press

Organization of Economic Co- operation and Development (2004), OECD Economic

Surveys- United Kingdom Volume 2004, Issue 3
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Williams P., Holmans A.E. (1997), Directions in housing policy: towards sustainable
housing policies for the UK, Paul Chapman Publishing

http://www.contractjournal.com/blogs/brickonomics/2008/10/the-uk-construction-industry-
i.html

Accessed on 19 Jan, 2010

http://www.politics.co.uk/opinion-formers/press-releases/housing-and-planning/cpa-
construction-industry-facing-bleak-2009-$1266494$364675.htm

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http://www.rentright.co.uk

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http://www.investopedia.com/university/economics/economics3.asp

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http://en.wikipedia.org/wiki/Supply_and_demand

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i.html

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http://www.investopedia.com/university/economics/economics3.asp

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http://www.rentright.co.uk

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