...Demand, Supply and Prices in the Housing Industry F. Hill ECO/365 Principles of Microeconomics July 30, 2014 Mr. Keith Watts Abstract The slowdown in the housing market in the US has been accompanied by a sharp fall in house prices and a glut of homes for sale in the market. While the idea that this high number of dwellings for sale should place downward pressure on house prices is intuitive, little empirical work has been done in this area to assess the factors affecting house prices. This paper explicitly models the relationship between changes in prices of houses and various measures of housing demand and supply. A simulation model has been included to help explain the evolution of the housing market and enable one determine the equilibrium price, quantity and prices. The company under consideration is GoodLife management- a property management company that manages seven communities in the city of Atlantis. Keywords: Housing market, supply and demand, price elasticity and economics. Introduction From the demand and supply curve of the firm, various microeconomics and macroeconomics can be identified. Microeconomics looks at the behaviors of individual people and companies within an economy. It is based on the idea of a market economy, in which forces of demand and supply are behind prices and production levels of goods and services. Microeconomics is concerned with supply and demand in individual markets, individual consumer behavior and individual labor markets...
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...The housing market in UK has been effected in many different ways, from immigration to shortages of homes I am looking to discuss these factors in depth. The demand of houses depends on what the interest rates are, as this will decide whether the buyer will be able to get a mortgage at a cheaper rate. The lower the interest rate the more demand of houses and the more demand in houses the higher the price. The supply will depend on what the price of the house is. The higher price seller will get more people would want to sell it. This is short term as when more houses appear on the market it will lead to a reduction in price if there isn’t enough demand. A possibility to why the demand is high could be the issue of immigration. Immigrants are placing huge amounts of pressure on the housing market driving up rents and property prices. The massive influx is also forcing the government to dramatically revise its house building targets, putting greenbelt land at risk. On average 100,000 new houses will be needed every year over the next decade to cope with immigration. Foreigners are also placing demand on council and other social housing taking a minimum of 10,000 properties last year. The UK has seen several changes in the property market over the last decade. Changes in Government policies and cuts have influenced many changes in the property market. The government has tried to keep up with the demand but as the population grows there are more people in the economy and...
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...Contents 1. Introduction 3 2. The evolution of house price in the UK and the factors affecting 3 supply and demand 3. The price and income elasticity of housing demand 9 4. Literature 11 1. Introduction The aim of this study is to explain the changes in the prices of houses by shedding light on factors affecting the demand and supply of houses in the UK. Firstly, we will look at the evolution of house prices in the UK since 2006 and examine relations between house prices and output, employment and mortgage interest rate. Also, supply of houses will be discussed by noting changes in the number of new houses and factors such as land cost, building cost. Then, in the next section we will proceed to examine the factors affecting the sizes of different elasticity of demand 2. The evolution of house price in the UK and the factors affecting supply and demand Over the last four decades, the UK housing market has been subject to boom/bust cycles and Stephens (2011) indicates that UK has one of the most persistently volatile markets in the world. Especially, since 1997 there has been a record growth in UK house prices. The above chart indicates that there are significant fluctuations the in UK housing market. House prices experienced steady growth during both 2006 and 2007 and reached their peak in late 2007. As the end of the 2008, the average house prices...
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...The Research Proposal For The Relationship among Shanghai Commercial Housing Price and Four Variables, Disposable Income, Completed Housing Area, Interest Rate, and Inflation Rate (2007-2010) BY FIN (2) Yang Bohan 0730200084 Tel: 13750016724 Guo Bingyu Liu Yuanjia Xia Jinjing Teng Linyan Li Hui 0730100034 0730100086 0730200079 0730200063 0730200148 Beijing Normal University – Hong Kong Baptist University United International College May 14, 2010 0 Table of Content 1. 2. 3. 4. 6. 7. 8. Title ........................................................................................................................................... 4 Introduction ..............................................................................
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...Name Professor Course Date Economic analysis of the current residential housing market in Houston INTRODUCTION This paper provides an economic analysis of the current market for single family homes in Houston. Over the past few years, the real estate market has been declining in most states where prices of homes have been falling. In addition, the number of home buyers has been falling in most cities over the past few years, even after recovery of the economy from the 2008/2009 global financial crisis. However, in Houston, Texas, the real estate market has experienced a stable growth for the last 21 months (HAR 2013). According to a report by Houston Association of REALTORS®, home buyers in Houston increased by 15.5% in February 2013 as compared to the same month last year (HAR 2013). In Houston City, single family homes constitute about 76.5% of the total housing population. During the month of February 2013, 4,407 single family homes were sold in Houston. Single-family home average sales price increased by 9.6% to $220,445 from $201,113 in February last year. The median price also increased by 7.9% to $161,700 in February 2013 (HAR, 2103). Median price is the price at which half of the homes were sold. The above information is summarised in the table below. | February 2012 | February 2103 | Change | Single-family home sales | 3,815 | 4,407 | 15.5% | Single-family average sales price | $201,113 | $220,445 | 9.6% | Single-family median sales price | $149,900 | $161,700...
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... Contents Pages Introduction 3 Aim 3 Limitation 3 UK Housing Market 3 Review of UK housing market 3-6 Factors effect in UK housing market price 7-14 a) Demand 7-11 b) Supply 12-14 Present situation/scenario 15 Government innovation 19-21 Conclusion 22 References 23-24 INTRODUCTION The UK housing market has experienced a varied rate of ups and downs in house prices for past few decades. During the past 30-year period, the nominal and real average annual price in UK has undergone volatile changes. There were three boom periods: 1980s, late 1990s and early 2000 and a bust in early 1990s (Sloman, John2006). These rise and falls in house prices had been primarily caused by the changes in demand for housing. Being a big open economy, UK is not really affected by external shocks caused by changes in international prices and currencies but by various internal and associated factors. Money supply and government policies are believed to be important factors behind the booms. The primary reason behind the increase of money supply was continuing high economic growth during the concerned period. From examination of historical development of the UK housing market, it can be argued that house prices fundamentally come under pressure from many aspects: demographic pressure, increasing income, accumulated wealth and so on. However, present trend of the housing market has not given birth to any alien determinant that is causing the market...
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...analysis of the key macro and micro economics factors which impact on the current UK housing market Introduction This paper explores the current situation in the UK housing market. Fundamentally, the paper argues that the current situation in the housing market is a legacy of the way in which the housing market developed over the early 2000s into the 2007 and 2008 financial crisis. As the fall out from this crisis has taken two or three years to properly be felt it can currently be said to be exerting a major influence on the way the housing market in the UK is working today. The paper therefore places a major focus on developing an understanding of how the financial crisis occurred and the impact that this had on the UK housing market, in order to understand the key factors which are shaping the housing market today. The paper begins with a look at the state of the UK economy at the moment. This is only examined in brief but provides a key background to the work. This is then followed by a look at the UK economy and the housing market and how the two link together. The following section is the major section of the work as this focuses on the macroeconomic factors which have shaped the housing market. This section in particular focuses on the legacy of the housing market developments of the early 2000s. The following section briefly explores the microeconomic elements which have shaped the housing market – the major emphasis here is on the role of buy to let mortgages as a means...
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...Problem 3.1 Demand and Supply Curves. The following relations describe monthly demand and supply conditions in the metropolitan area for recyclable aluminum QD = 317,500 - 10,000P (Demand) QS = 2,500 + 7,500P, (Supply) where Q is quantity measured in pounds of scrap aluminum and P is price in cents. Complete the following table: Price Quantity Quantity Surplus (+) or Supplied Demanded Shortage (-) (1) (2) (3) (4)= (2)-(3) 15¢ 16 17 18 19 20 SOLUTION Price Quantity Quantity Surplus (+) or Supplied Demanded Shortage (-) (1) (2) (3) (4)= (2)-(3) By putting the values of P in the QD & QS equations: 15¢ 115000 167500 -52500 16 122500 157500 -35000 17 130000 147500 -17500 18 137500 137500 0 19 145000 127500 17500 20 152500 117500 35000 Problem3.2 Demand and Supply Curves. The following relations describe monthly demand and supply relations for dry cleaning services in the metropolitan area: QD = 500,000 - 50,000P (Demand) QS = -100,000 + 100,000P (Supply) Where Q is quantity measured by the number of items dry cleaned per month and P is average price in dollars. A. At what average price level would demand equal zero? B. At what average price level would supply equal zero? C. Calculate the equilibrium price/output combination. SOLUTION A. From the demand relation,...
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...rapidly. This led to an increased demand of office space and property for business development and expansion. The expansion of the business sector was driven by the dire demand of goods and services by increasing world population. With increased population, firms were forced to invest more on their producing plants. This was meant to cater the increasing level of demand. Subsequently, in addressing the market demand, firms were called to employ more personnel to aid in its production. This led to the demand of the tertiary employees who were to inject their expertise in production to ensure quality and quantity products were developed. Employing additional staff meant increased demand of office space. Property developers were therefore called in to address the emerging demand for new office spaces. In addition, the demand for additional office space was also necessitated by the 20th century market liberalization and subsequent globalization. Globalization encouraged the movement of firms from their traditional locations i.e. mother countries to other nations. These relocations came with an increase in demand for both manpower and office space. From the aforementioned, it is apparent that globalization was the nerve driver of property development of most countries. In addition, it is evident that with it came an increased demand of service sector employees. However, this has largely changed in the 21st century (Havard, 2002). The demand for office space in the 21st century...
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...Product Purchases and the Economy Jose Velasco ECO/372 November 9, 2015 Matthew Mulyanto Product Purchases and the Economy Macroeconomics is a helpful resource for enabling understanding of factors that affect shifts in supply and demand and pricing of products. Macroeconomics can provide an understanding, for example, of how indicators such as inflation and interest rates can reflect the state of the economy, revealing its relative strengths or weaknesses. Information such as this can be extremely useful in determining whether one should buy a product such as a home, which would necessitate a mortgage and monthly payments. Economic Indicators and the State of the Economy Two economic indicators that reflect the strength of the economy are the inflation rate and interest rates. A stable and low inflation rate, for instance, is viewed worldwide as a necessary means to keeping the economy strong. Banks worldwide, including the U.S. Federal Reserve, the Bank of Japan, and the European Central Bank have published directives stating their primary objective for monetary policy as being “to maintain price stability” (Federal Reserve Bank of San Francisco, 2006). Others, such as the Bank of England, the Bank of Canada, and the Central Bank of Chile, have a similar goal to “keep inflation low and stable” (Federal Reserve Bank of San Francisco, 2006). Maintaining a stable inflation rate allows governments to strengthen their economies by ensuring...
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...The Housing Market and Macroeconomics Housing is an important part of macroeconomics. It contributes to our GDP through private investments and consumption spending. This includes purchasing a new or existing home and the costs of maintenance or upkeep on the property, in the form of services. Prior to the collapse of the housing bubble in 2007, the market had seen a steady increase in housing prices, and a decrease in interest rates, due to the increase in the federal funds rate (Arnold pg 379). As interest rates fell the demand for housing increased, thus increasing housing prices. But what caused the housing bubble? There are many different arguments to this question. During this period lending practices became less strict and we saw a move to less traditional lending patterns and unsound lending practices. Banks were lending with less documentation and a smaller required down payment, bringing homeowners perilously close to 100% loan-to-value ratios. Another cause for concern was the complex mortgage-backed securities and subprime mortgages of Fannie Mae and Freddie Mac. The last interesting argument for the cause of the bubble is housing starts and land-use regulations, which I want to discuss further. THE HOUSING BUBBLE In assessing the causes of the housing bubbles, many scholars have focused on the demand-side factors, such as low interest rates, zero down payments, and easy lending terms. However, as Randal O’Toole argues, the demand-side factors were more or less...
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...Supply and Demand Name University of Phoenix Supply and Demand People who are planning to buy a new house should first be well informed about the status of their new locality’s real estate market. The housing market is strongly governed by certain economic conditions, and understanding the economic trend will allow interested buyers to wisely choose the best price for their new house. It is also an established fact that the business conditions can also influence the real estate market; however, the huge aspect that will truly affect housing prices is still the law of supply and demand. The principle of supply and demand is an economic principle that is applicable to all commodities whether material or immaterial. It is a principle that establishes the relationship between the price of the product to its availability and supply. So for example, if there is a high demand for a product that currently has low supply, the tendency is for the prices to be higher since there is the security of the market that can support the price imposed. On the other hand, if the demand for a certain product is low, but the supply is high, then its price will naturally decrease simply because of its high availability in the market (Mankiw, 2004). The homebuilding industry originally started out of the human needs to have stable and hardened shelters that can provide them with long term protection and comfort, especially when they are already starting to...
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...and stock prices. However, sudden price change could affect home ownership to some extent. Under any environment, house as a basic necessity to continue living. The health of the housing market is a topmost importance and straight related to ability to own and thus, the purchasing power of the public since housing industry is an important sector to the Malaysian economy. The graph below shown the Malaysia house price index from 2000-2014 which well explained the percentage of house price increasing of each year. 2.0 Factors that cause the house price to increase House price determined by the market in many factors. The market term is known when a group of buyers and sellers interact to exchange goods and services. Buyers demand goods and services yet sellers supply goods and services in the market. Demand is defined as the ability and willingness to buy a particular quantities of goods in a given period of time at a particular price. The law of demand states that the higher the price of a product, the lower the quantity demanded of that product and the lower the price of a product, the higher is the quantity demanded, ceteris paribus. Supply is defined as the ability and willingness to sell or produce a specific product and service in a given period of time at a certain price. The law of supply states that the higher the price of a product, the greater is the quantity supplied of that product and the lower the price, the lower is the quantity supplied, ceteris paribus. Equilibrium...
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...player. The Buyers, also known as the consumers, purchase the products marketed in the market at a price that is agreeable to all parties. Competition amongst the seller and buyers initiates the equilibrating process without either participation; the equilibrium process cannot be triggered. The Market Equilibrating Process The business dictionary defines market equilibrium as the current place in which an items supply matches the items demand (Business Dictionary, 2013). Since there is neither surplus nor shortage in the market, price tends to remain stable in this situation. The market equilibrating process is the procedure that suppliers use to reach equilibrium by maintaining a balance between supply and demand. McConnell defines supply is the schedule of quantities of a good and service that people are willing and able to sell at various prices and demanded is the quantities of a product that will be purchased at various possible prices (McConnell, 2009). The consumer’s demand of a service or good and seller’s ability to supply the service or good is what controls the quantity and the price of a product being sold. When buyers intended price matches the price that the seller considered to be a reasonable and affordable, the price is said to be at equilibrium. The Sellers and Buyers are at equilibrium price, which is the market clearing price, when the mutually agreed upon price matches the...
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...Supply and Demand Katelyn Cranmer XECO/212 March 25, 2012 Supply and Demand Supply is the amount and type of real estate available for sale or rent at differing price levels in a given real estate market. Demand is the amount and type of real estate desired for purchase or rent in a given market at a given period of time. In the real estate market there are factors that affect the supply and demand. One of the factors that affect the supply is the availability of loans and financing to build new homes. When the market crashed the availability of loans and financing of a home became very scarce. Because of the availability of home loans and financing it has made the supply of new homes go down, with no loans or financing there is no money to be able to afford land to build on or to pay a skilled contractor. When there is no availability for new homes the demand seems to be higher. When the supply is affected in the housing market the prices seem to be lower there for there is a higher demand for house, because it has now become affordable to buy. However, one of the factors that can affect the demand is the price of a new home along with the consumer’s income. When consumers are looking into buying a house everything is based off the amount of income that they bring in. If the consumer’s income is to low then they will not be able to purchase their new house. Because the prices of a new home seems to be relatively more than people can afford with the current amount...
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