How Volatile are House Prices?
With recent concerns over the US housing market, combined with falls in the stock market, many have been wondering whether this will cause problems in the UK housing market.
Factors that Cause House Price Volatility
Increase in Buy To Let Sector.
Due to the gains in housing equity in the past 20 years, more people have been seeking to invest in housing, rather than other forms of investment. In the UK there has been a rise in the number of private buy to let investors. This group of house buyers are more likely to be sensitive to changes in house prices. The buy to let market depends on capital growth occuring. If house prices start to falter, many in this sector will look to selling their houses or at least not buy any new ones. Therefore, the growth of buy to let investors increases house price volatility.
Growth in Oversees Investment.
Similar to an increase in the buy to let sector, there has also been an increase in demand for houses from oversees buyers. This has had a significant effect in boosting demand, especially in London. Whilst some of these buyers genuinely want to live in the UK, there is also an element of speculation.
Market Sentiment
People’s willingness to buy depends to a large extent on the confidence of consumers. If house prices fall or even grow at a slower rate this can adversely effect the confidence of homebuyers.
Interest Rates
Changes in interest rates have a big affect on the disposable income of homeowners. This is especially the case with variable and interest only mortgages.
Limited supply
Supply is very inelastic. Therefore an increase in demand leads to a big increase in price - firms cannot increase supply in order to meet demand.
Factors that reduce House price speculation.
Stamp Duty and other costs of moving.
To buy and sell houses incurs significant costs. It is also quite time consuming. Because of this many people are put off buying and selling houses for speculative reasons. In this case it is not like the stock market where it is easy to buy and sell.
Most People buy to Live.
Most people in the UK buy a house to live in. The capital growth is often not much use, because if they sold the house it is just as expensive to move elsewhere. Also people do not see renting as an alternative to buying.
2 comments ↓
The single biggest reason is demand far outstripping supply. In terms of land mass the UK is an incredibly small country yet it attracts amongst the highest levels of immigration in the world.
Recent figures suggest the UK would need to build 200 homes a day just to meet demand from immigration. While recent interest rises may help slow down growth in the short term the long term outlook can only be for properties to become even more unaffordable to ordinary people, particularly first time buyers
Marcus
http://www.webcomparison.co.uk/
Now a days more people have been seeking to invest in housing, rather than other forms of investment. I have gained lots of profit through this.
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