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Last updated at 4: The average cost of a home in the UK jumped by 1. The annual rate at which prices are falling also continued to ease during August, narrowing to just 2. The group said prices were now 3. As a result fewer people have been forced to sell their home as is normally the case during a recession, and this has contributed to shifting the balance of supply and demand in favour of sellers during Low interest rates have also helped make property more affordable for first-time buyers, boosting demand, despite the ongoing problems in the mortgage market.
The Council of Mortgage Lenders also reported a 26 per cent rise in mortgage lending in July to its highest level for nine months, as buyers continued to return to the market.
But despite the recent pick up in housing transactions, economists have warned that the number of homes changing hands still remains well down on normal levels.
The ongoing problems in the mortgage market are also continuing to limit the number of people getting on to the housing ladder, despite some recent signs that lenders are beginning to loosen their lending criteria. As a result, it is thought any recovery in the housing market is likely to be gradual, with some commentators warning that further price falls cannot be ruled out.
The recent global economic recession has generated many problems worldwide, such as increased unemployment, lack of consumer confidence and reductions in salaries and wages. In the United Kingdom, housing prices also plummeted, but during August the average cost for a home rose by 1. This is, according to the article, mainly because of low interest rates and shortage of supply.
Low interest rates, the amount borrowers pay to lenders for the usage of the borrowed money, would result in a shift in demand, the ability and willingness to consume a commodity, to the left Figure 1, D to D1. This is because consumers are encouraged to borrow more, which would lead to increased spending.
Consequently, the equilibrium would move from A to B, resulting in an increase in price P to P1. Furthermore, low interest rates would lead to lower mortgage repayments, hence allowing homeowners, usually predicted to sell their homes during a recession, to refrain from doing so.
There would be an inwards shift in supply of homes Figure 2, S to S1the ability and willingness to provide a commodity, as fewer owners choose to sell their houses, changing the equilibrium from B to C; the price would increase from P1 to P2. Overall, the change in price P to P2 would amount to 1.
As mentioned in the article, it was forecasted that when there is a rise in interest rates in the future, the housing market may experience some falls in average price. This is because as interest rates increase, there is a higher tendency to save than spend.
Thus, the demand curve shifts inwards Figure 3, D to D1. Also, homeowners may prefer to sell their houses because of higher mortgages, shifting the supply curve outwards S to S1.
On the whole, the equilibrium would have changed from A to B, with prices falling from P to P1. A future increase in interest rates may affect different stakeholders in various ways; demand and supply changes may not follow what is depicted in Figure 3.
Those who have high mortgage repayments may sell their homes and seek to find smaller and cheaper housing. Consequently, demand for small homes may increase, whilst demand for larger homes may decrease. The article presents the view that in the future, there may be further price falls.
This is supported by the anticipation of higher interest rates.
Also, because consumer confidence is at a low due to the global economic recession, once supply catches up with demand, ceteris paribus, it may be assumed that prices will not rise any further. Hence, some economists would argue that it is most probable that prices would then fall.
In addition, the increase of value added tax in January back to the previous rate of Thus, fewer consumers would be able and willing to buy new homes and demand would drop, leading to a fall in housing prices.Apr 20, · Just a sample Economics IA to give you a feel of what it entails.
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Current problems of developing countries, theories of economic development, agriculture, and economic development, measurement and prediction of economic performance of developing countries, alternative policies and reforms required for satisfying basic needs of Third World countries, interrelationships between industrialized countries and the.
Because the strict conditions required for theories to work do not exist in real-life, inefficiencies in markets occur, causing market failures. The IB Economist provides IB Economics IA Articles with brief talking and evaluation points for your IB Economics Internal Assessment.
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