The Housing Market refers to the supply and demand for houses, usually in a particular country or region. A key element of the housing market is the average house prices and trend in house prices.
Definitions related to housing market
- UK nominal house prices – actually monetary value – not adjusted for inflation
- Real house prices – house prices adjusted for inflation, e.g. if prices rise 10%, but inflation was 2%, then real house prices rose 8%
- Mortgage equity withdrawal – when homeowners re-mortgage house and take equity withdrawal.
- Affordability index – how much percentage of disposable income is needed to keep up with mortgage payments – rents.
- Buy to let – When investors buy houses with the intention of renting out the house to gain income from rent and hopefully capital gains.
- Capital gains – when investors see a rise in house prices
- Negative equity – when a homeowner has an outstanding mortgage bigger than the value of the home. If they sold their house, they would still owe money from the initial mortgage
- Interest only mortgage – when homeowners take out a mortgage which only involves paying the interest on the loan and not any principle on reducing the outstanding loan.
- Real interest rates – nominal base rates – inflation rate
- Base rates – the interest rate set by the Bank of England; this base rate has a strong influence on the other interest rates in the economy. Banks will usually alter their lending rates in response to a change in the base rate.
Real house prices 1975 – 2015
The Housing Market includes the following features
- Supply of housing – quantity of housing stock
- Demand for housing
- House prices
- Rented sector. Buy to let investment and demand from tenants
- Government intervention in the Housing market
Factors which affect the Housing Market
- Interest rates – which influence cost of variable mortgages
- State of mortgage industry – determines whether people are eligible for mortgages
- Economic growth, incomes and unemployment rates
- Population and demographic trends
Features of UK Housing Market
- The UK Housing Market is often volatile because of various factors.
- The UK Housing market has an influence on the wider economy. e.g. when house prices are falling, consumer spending tends to decrease.
- Because the housing market influences the economy and individual homeowners, it is important to try and be able to predict future movements in the housing market.