Ecnmic Essay Example | Topics and Well Written Essays - 1500 words

Ecnmic - Essay Example Again the prices fell during 2008, which reported a massive drop since the start of the year. These changes are due to the factors of recession that emerged during the last few years. The reasons for such change can be attributed to the demand and supply theory which states the relationship between demand and change in prices. The lower prices during 2008 are due to credit crunch that resulted in scarcity in availabilities of mortgages. The buyers could not purchase because they could not borrow money, thus, a fall in demand was seen in the housing sector. In order to boost the market, prices were lowered down to increase demand. According to certain forecasters, they will continue to remain slow because of rising inflation, unemployment and slow pace of growth. The interest rates during 2007 affected consumer spending. As in the theories of demand and supply, interest rates play a major part. Thus, the impact of interest rates on the house price will have to be established. As the interest rates rose, the number of mortgage approval also fell due to its effect on the consumer’s capacity to spend. When this ability decreases, the demand also decreases accordingly. It was also seen that with an increase in interest rates during 2007, a rise in sales of houses was recorded. Due to the rise in inflation, first time buyers of house felt the necessity of fund as they found themselves incapable to afford prices. Thus, with a thrust in the rate hike, the prices of house were also increased to maintain break-even as people were forced to take loan, despite the fact that interest rates were still high. Growth of real incomes: As there is a rise in an average standard of living, the demand for housing as well as for luxurious properties increased. As people in UK showed a trend to move to exclusive houses, the demand for housing increases with high prices which increased the growth of incomes