A house is one important structure that forms one of the basic human needs in life. A house is the basic component in making a home. From a home, families are able to bring up individuals who grow, develop and contribute in one way or another to society. I therefore say that an effective society as we know it is directly reliant on the houses that provide homes to families. Individuals can hardly function well if they didnt get a good nights sleep, were able to cook and eat their breakfast, hence the importance of having a house where the basic activities of daily living are accomplished. Due to dilapidation and a steadily increasing population, more houses are being required every year.
However, the price of houses determines what kind of home one will acquire. The prices of houses are estimated through mortgages that are paid. The current financial crisis in that began in the USA made investors in real estate change the prices of their houses downward has unemployment increased (Andrews and Calmes, 2008). This situation could not be resolved through foreclosure since neither the bank, nor the owner of the property, could sell it to recover losses, there were simply no buyers because they expected prices to go down further. This has negatively affected spending behavior McQueen (2008) asserts that spending has started to falter and quotes several factors, which have caused this fall in spending by UK consumers.
CHANGES IN PRICES OF HOUSE
The price of anything plays a major part of the market operations. The price is determined by the interaction of demand and supply in the market. On the other hand the movement of price, which we call price adjustment, always maintains equilibrium in the market. Any dispersion from equilibrium is automatically recovered by the price adjustment. At the existing price level the market will face the excess demand. Then the price starts its action. The excess demand would pull the price up and the following two effects will follow that. Due to rise in price there is an extension of supply represented by an upward movement along the supply curve and there will be a contraction in demand represented by an upward movement along the demand curve. The equilibrium is again achieved at new price at which the supply and demand match again. Hence any dispersion from equilibrium is automatically recovered by the price mechanism (Mankiw, 2008).
Having stated that there has been downward trend in prices of houses in the UK in the last three years as shown by the chart below
Adopted from (Walayat, N 2009, httpwww.marketoracle.co.ukArticle8080.html)
From the chart above it can be noted that the price of houses started going down from mid 2008. However it grew from approximately 185000 in 2007 to approximately 205,000 august, 2008. Then downward trend began from approximately 205,000 august, 2008 to 165000 in January 2009.
As a result of house prices fall in this period obtaining house mortgage loans difficult. These factors are worsened the current housing crisis. While demands remain low, there is an increase in the number of homes in the market hence, house prices continue to fall (Sprague, 2008).
FACTORS DETERMINING DEMAND AND SUPPLY OF HOUSES OF HOUSES
There are many factors that are influencing the consumption of houses in the UK and they include
Growth The current financial crisis has made the growth rate stagnant in the UK and many people lost confidence in the economy as the real sector is subject to a high level of risk. This affected the price of houses. For example the national went down. GDP mainly indicates the sum of goods as well as services produced in an economy. It can be looked upon as the most important indicator of growth of an economy. The current crisis has a huge impact on the growth of the housing sector. The growth rate was only 1.5 in 2008, which reduces to 1 in 2009. Consumer spending also reduces to 0.2 and a significant drop in the investment level. The price of housing also shows a declining trend. The mortgage approval falls by 70.
However the UK economy is strong and prices of houses did not fall as in the USA.
Immigration The number of immigrants to UK played and important role in prices of houses. Immigrants have become vital labor sources in several key industry sectors particularly manufacturing, construction, agriculture, domestic service, and other services. The immigration of health care providers to these UK can be attributed to stability of house prices in the UK. Moreover, opportunities open up for these workers to gain a better life in abroad in contrast to economic problems in their countries of origin.
Employment Opportunity This financial crisis expects to cost at least a number of jobs in the UK and unemployment increases to 7.8, from 5.3 in the year 2008. Uncertainty is the main cause which reducing consumers confidence and at the same times the level of spending across the world (Jones, 2009).
Public Policy and Economics for Development Public policy of housing also played an important role in determining the price of houses. Therefore an economic policy may enable or prevent development, and how a government may define the direction of the societys progress. When it comes to the aspect of development, public policy fuels a number of initiatives that ensure goals are designed according to the needs of the population. However, the feasibility of these policies is dependent on the capacity and capability of the government to deliver and manifest these goals into working programs (Just, Hueth and Schmitz, 2004).
Setting this in the setting of policy-making, a government needs to decide which policies are the priorities as based on the available resources. For instance, a government may have health, education and security as its top priorities from there, a bulk of the governments resources will be directed to the programs that are created according to the policies in these areas (Perkins, Radelet and Lindauer, 1996).
According to OSullivan and Sheffrin (2003), economic development pertains to the means to increase the standard of living of the population through the improvement of their economic, political, and social well-being. Translating these into actual government programs may not be as easy, but basically, the idea is to ensure that the populations basic needs are met.
Kaplan, Shema and Leite (20080 defines public policy as a system of laws, regulatory measures, courses of action, and funding priorities. With this, public policy is therefore formed through a range of needs in which interest groups emphasize which of these areas and sub-areas cater neither to nor to the publics interests.
The economics of public policy steps beyond scarcity, opportunity costs and marginal analysis primarily because it is integrated with ethical and moral issues, especially as the government takes steps towards providing development in a greater sense. How public policy is created is based on governance, and how a range of resources --- from wealth to power --- can create the best channel that would incite growth and create an environment of well-being for the entire population. The created and passed policies therefore reflect the rationality of the government, its prioritized issues on scarcity, and how the conducted marginal analyses have led to the most effective solutions across the social, economic and political challenges of the society.
Inflation Inflation played an important role determining the price of houses in UK. At that time another bubble was created following the housing bubble and it was the commodity price bubble. The price of houses increases from 160,000 to 205,000 from 2007 to 2008, which implies larger share of spending in houses, which reduces the growth rate in real estate sector. The combining effort of lowered food and oil price leads to reduce the inflationary pressure. Another reason for price inflation is falling is that the demand for goods, services is slow. This situation encourages the consumers to hold back their spending as prices are expected to fall further. It my cause a deflation in the economy which further discourage spending.
SUPPLY AND DEMAND
Rising rents and decrease in low-income housing caused housing rent to represent as much as 40-60 of earnings among poorer families. Availability of cheap and easy mortgages made buying a house attractive in the USA. As demand rose, so did the prices. The result was a phenomenal rise in housing prices evidenced by annual appreciation of housing prices by over 7.6 in 2000-05 and 11 in 2005-06 compared to 1 in the 1990s (Altman, 2009) leading to overvaluation of houses in 2007. When people were unable to pay for the houses, house prices fell and made obtaining house mortgage loans difficult. This lead to the following change of demand and supply of houses
With the injection of loans in the market through cheap funds source people will have more money and the aggregate demand (AD1) will move to AD2 curve thus shifts to the right. This will force real estate investors to raise prices houses. Contractors face the same problem, they have either to raise prices or suffer shortages since they do not have the capacity to build more houses at the same price without a simultaneous adjustment in labor cost. The reverse is true actually, with increase in money in the market labor and other input costs rise and the aggregate supply (AS) curve shifts to the right and upwards. The result is inflation. Notice the marginal increase in quantity with substantial increase in prices. This will be illustrated as shown below
EMBED AutoCAD.Drawing.15
Costs involved Construction costs in recent years have been quite volatile and unpredictable. This is due, in part, to the instability of the steel market, where costs often are more than house prices. The framing system of a building typically accounts for 10-12 of the total building cost. When compared with concrete products, steel is typically 5 cheaper overall than concrete (Lawrence, 2002). This causes the price of the house to go up.
Environmental Effects All construction materials are limited and extraction of them contributes to pollution of the air and water. Energy is also required to process these basic materials. However, there are differences in the environmental impact of differing materials, and these can be assessed in terms of sustainability (Givoni, 1998).
Wood is a renewable resource, yet there are no uniform guarantees that wood utilized is being replaced, if these new trees will continue to flourish in the same locations as before, or even if those trees are of an equal character. Steel, on the other hand, is infinitely recyclable with no loss of use.
One of the responses to this global challenge is the development and implementation of a process by which damage to the environment can be measured, and by which one can determine the part of the process in which most environmental damage occurs. Analysis of these stages has led to reliable data which predicts a buildings impact on the environment and to the development of newer, more eco-friendly materials which will serve the same purpose as older, traditional materials. In the case of steel used in the construction of the built environment, newer production processes have led to a kind of steel manufacture which is much less harmful to the environment.
House Quality The quality of houses helps to determine price of houses. The quality affects also safety of the house.
Sustainability Rate of resource depletion, recyclability, energy required in manufacturing, and comparison of different types of materials are important for overall sustainability. As long as key social, economic and environmental issues are maintained, green steel technology are not only sustainable, but necessary for the earths future.
Availability of financing The availability of cheap financing sources will provide funds to consumers to purchase houses. However, in the last three years the economy experienced a down turn which contributed to the consumers inability to purchase homes. This is because the source of finance became very expensive, trying the prices off houses down trend. The demand and supply curve for the last three years has been shifting to the left as shown in the graph below.
It is important to note that prices came down supply of the houses also reduced. This reduction is the net effect of reduction in source of financing.
Location Prices of various houses in eastern London become expensive as thee western sides of London were cheap. Houses in major town in United Kingdom were fairly expensive as compared to those in rural and distance suburbs. As the financial crises started affecting the macroeconomic factors people started moving to cheaply priced houses driving the price of houses in posho estates down. A bad location for house will have reduced interested buyers thus reducing the price downward.
Perception The perception of the people in the United Kingdom contributed greatly affected the price of some houses in the United Kingdom. People viewed manshionates semidetached houses and bungalows has cheap houses since they are easy to live in. this perception contributed to the changes in price in the area. Also people move around in the estate to find whether there is a house for sale in a reduced price or with a discount this is majorly because of the financial crises. This behavior affects the performance of houses in the market.
Social changes Social behavior has changed drastically in the United Kingdom because majority of people currently appreciate renting a house as opposed because the idea of acquiring a house is currently not as important as it was in 1980s. This also contributed to the downward trend of house prices in the United Kingdom.
FUTURE TREND OF HOUSE PRICES
With the recession of date, the U.K. real estate industry has been affected from the financial crisis from large lenders and brokerages, allowing the necessity for governmental and political infusion into the industry. The real estate sector experienced a 19 fall in price over 2008-2009, with large losses experienced in urban centers and high level of unemployment. With the fate of real estate at the hands of public policy, prices have been continually dampened by falling rents and lease provisions and an increased cost of funding for houses (House. (n.d.)).
Because the real estate is considered an essential, thus the UK Government has also implemented various strategies to restore consumer confidence. Whereas confidence in U.K. real estate s in general has plunged in last three years, many people continue to express confidence in the sector (Hassell, 2003). The future prices will be as shown in the chart below
Adapted from Walayat, N 2009
From the chart it shows the prices of houses will continue to come down to the value of 129,000 in the year 2012. These will a big fall from the prices of 2007 that were as high as 200,000. This will be considered as 16 decline per annum something that has never been witnessed before.
In order to stabiles market prices of houses various incentives should be implemented both fiscal and monetary. The government should encourage banks and mortgage companies to reduce interest rent but to increase creditworthiness evaluation of customers I order to allow many people access sources of financing to acquire homes. The government should also pass a law which will be used to compact complexities that have arisen due to the risks associated with the industry. Taxation has an impact on acquirement to development functions and outlook of the sector therefore it should be reviewed to make sure that the sector recovers.
If direct and indirect taxes in real estate are reduced there will be a resurrection of affordable housing, demand will increase and the government can claim to have fulfilled its responsibility of providing housing to larger number of people. It is known that profit margins in affordable housing are much lower than the mid and luxury segment but the state can for some time introduce tax holidays for low cost and middle housing which will increase demand and revive the entire sector, eventually leading to a big boost to the entire economy. The governments should give a tax holidays in real estate and infrastructure projects such as airports, highways, roads, ports and water supply projects. There should also be a move to encourage the government to extend tax holidays in the development of integrated townships. Such measures will go a long way in reviving the economy since a number of economic activities are generated from the real estate sector. If projects with lengthy gestation periods are exempted from the corporate tax provisions in keeping with the spirit of economic development, significant growth can be achieved in the sector.
Commercial real estate is considerably burdened with service tax and firms are on the constant look out for the government to either abolish or reduce the tax. Service tax is a considerable burden on consumers also in view of its impact on the final price of real estate products. Tax implications can result in the improvement of liquidity, which cannot be denied by any economist because such measures assist real estate firms to invest in new projects in addition to having extra time in repaying the loans taken for their projects.
As the UK economy begins to rebound, the ability to accommodate to economies of scale will translate into profound success for this industry. Accordingly, the major economic indicators relevant for this industry are the 3-month LIBOR-OIS spread and Prime Interest Rates.
Since the slow down of the housing market severely affects the financial market, and the economy, slowing down the number of foreclosures may be the first step in the recovery of the housing market Sprague (2008). As a first step, Banks should tighten their lending requirements and increase the interest rates to discourage people from borrowing to purchase new homes. However, lending to eligible applicants has to commence again. A combination of these two actions will help reduce the inventory of homes on the market and stabilization of house prices. Drop in inventory of homes will spur increase in the construction of new homes, improving cash flows and employment, and increased spending on housing and private construction. However, realization of the benefits of such actions will take some time (Smant, n.d.).
Foreclosure is a reality and needs immediate attention. Homeowners deserve to retain their homes especially that they have paid for them. Government legislations which assist the homeowners while easing the housing crisis, would be effective since it protects both, the people and the industry.
However, the price of houses determines what kind of home one will acquire. The prices of houses are estimated through mortgages that are paid. The current financial crisis in that began in the USA made investors in real estate change the prices of their houses downward has unemployment increased (Andrews and Calmes, 2008). This situation could not be resolved through foreclosure since neither the bank, nor the owner of the property, could sell it to recover losses, there were simply no buyers because they expected prices to go down further. This has negatively affected spending behavior McQueen (2008) asserts that spending has started to falter and quotes several factors, which have caused this fall in spending by UK consumers.
CHANGES IN PRICES OF HOUSE
The price of anything plays a major part of the market operations. The price is determined by the interaction of demand and supply in the market. On the other hand the movement of price, which we call price adjustment, always maintains equilibrium in the market. Any dispersion from equilibrium is automatically recovered by the price adjustment. At the existing price level the market will face the excess demand. Then the price starts its action. The excess demand would pull the price up and the following two effects will follow that. Due to rise in price there is an extension of supply represented by an upward movement along the supply curve and there will be a contraction in demand represented by an upward movement along the demand curve. The equilibrium is again achieved at new price at which the supply and demand match again. Hence any dispersion from equilibrium is automatically recovered by the price mechanism (Mankiw, 2008).
Having stated that there has been downward trend in prices of houses in the UK in the last three years as shown by the chart below
Adopted from (Walayat, N 2009, httpwww.marketoracle.co.ukArticle8080.html)
From the chart above it can be noted that the price of houses started going down from mid 2008. However it grew from approximately 185000 in 2007 to approximately 205,000 august, 2008. Then downward trend began from approximately 205,000 august, 2008 to 165000 in January 2009.
As a result of house prices fall in this period obtaining house mortgage loans difficult. These factors are worsened the current housing crisis. While demands remain low, there is an increase in the number of homes in the market hence, house prices continue to fall (Sprague, 2008).
FACTORS DETERMINING DEMAND AND SUPPLY OF HOUSES OF HOUSES
There are many factors that are influencing the consumption of houses in the UK and they include
Growth The current financial crisis has made the growth rate stagnant in the UK and many people lost confidence in the economy as the real sector is subject to a high level of risk. This affected the price of houses. For example the national went down. GDP mainly indicates the sum of goods as well as services produced in an economy. It can be looked upon as the most important indicator of growth of an economy. The current crisis has a huge impact on the growth of the housing sector. The growth rate was only 1.5 in 2008, which reduces to 1 in 2009. Consumer spending also reduces to 0.2 and a significant drop in the investment level. The price of housing also shows a declining trend. The mortgage approval falls by 70.
However the UK economy is strong and prices of houses did not fall as in the USA.
Immigration The number of immigrants to UK played and important role in prices of houses. Immigrants have become vital labor sources in several key industry sectors particularly manufacturing, construction, agriculture, domestic service, and other services. The immigration of health care providers to these UK can be attributed to stability of house prices in the UK. Moreover, opportunities open up for these workers to gain a better life in abroad in contrast to economic problems in their countries of origin.
Employment Opportunity This financial crisis expects to cost at least a number of jobs in the UK and unemployment increases to 7.8, from 5.3 in the year 2008. Uncertainty is the main cause which reducing consumers confidence and at the same times the level of spending across the world (Jones, 2009).
Public Policy and Economics for Development Public policy of housing also played an important role in determining the price of houses. Therefore an economic policy may enable or prevent development, and how a government may define the direction of the societys progress. When it comes to the aspect of development, public policy fuels a number of initiatives that ensure goals are designed according to the needs of the population. However, the feasibility of these policies is dependent on the capacity and capability of the government to deliver and manifest these goals into working programs (Just, Hueth and Schmitz, 2004).
Setting this in the setting of policy-making, a government needs to decide which policies are the priorities as based on the available resources. For instance, a government may have health, education and security as its top priorities from there, a bulk of the governments resources will be directed to the programs that are created according to the policies in these areas (Perkins, Radelet and Lindauer, 1996).
According to OSullivan and Sheffrin (2003), economic development pertains to the means to increase the standard of living of the population through the improvement of their economic, political, and social well-being. Translating these into actual government programs may not be as easy, but basically, the idea is to ensure that the populations basic needs are met.
Kaplan, Shema and Leite (20080 defines public policy as a system of laws, regulatory measures, courses of action, and funding priorities. With this, public policy is therefore formed through a range of needs in which interest groups emphasize which of these areas and sub-areas cater neither to nor to the publics interests.
The economics of public policy steps beyond scarcity, opportunity costs and marginal analysis primarily because it is integrated with ethical and moral issues, especially as the government takes steps towards providing development in a greater sense. How public policy is created is based on governance, and how a range of resources --- from wealth to power --- can create the best channel that would incite growth and create an environment of well-being for the entire population. The created and passed policies therefore reflect the rationality of the government, its prioritized issues on scarcity, and how the conducted marginal analyses have led to the most effective solutions across the social, economic and political challenges of the society.
Inflation Inflation played an important role determining the price of houses in UK. At that time another bubble was created following the housing bubble and it was the commodity price bubble. The price of houses increases from 160,000 to 205,000 from 2007 to 2008, which implies larger share of spending in houses, which reduces the growth rate in real estate sector. The combining effort of lowered food and oil price leads to reduce the inflationary pressure. Another reason for price inflation is falling is that the demand for goods, services is slow. This situation encourages the consumers to hold back their spending as prices are expected to fall further. It my cause a deflation in the economy which further discourage spending.
SUPPLY AND DEMAND
Rising rents and decrease in low-income housing caused housing rent to represent as much as 40-60 of earnings among poorer families. Availability of cheap and easy mortgages made buying a house attractive in the USA. As demand rose, so did the prices. The result was a phenomenal rise in housing prices evidenced by annual appreciation of housing prices by over 7.6 in 2000-05 and 11 in 2005-06 compared to 1 in the 1990s (Altman, 2009) leading to overvaluation of houses in 2007. When people were unable to pay for the houses, house prices fell and made obtaining house mortgage loans difficult. This lead to the following change of demand and supply of houses
With the injection of loans in the market through cheap funds source people will have more money and the aggregate demand (AD1) will move to AD2 curve thus shifts to the right. This will force real estate investors to raise prices houses. Contractors face the same problem, they have either to raise prices or suffer shortages since they do not have the capacity to build more houses at the same price without a simultaneous adjustment in labor cost. The reverse is true actually, with increase in money in the market labor and other input costs rise and the aggregate supply (AS) curve shifts to the right and upwards. The result is inflation. Notice the marginal increase in quantity with substantial increase in prices. This will be illustrated as shown below
EMBED AutoCAD.Drawing.15
Costs involved Construction costs in recent years have been quite volatile and unpredictable. This is due, in part, to the instability of the steel market, where costs often are more than house prices. The framing system of a building typically accounts for 10-12 of the total building cost. When compared with concrete products, steel is typically 5 cheaper overall than concrete (Lawrence, 2002). This causes the price of the house to go up.
Environmental Effects All construction materials are limited and extraction of them contributes to pollution of the air and water. Energy is also required to process these basic materials. However, there are differences in the environmental impact of differing materials, and these can be assessed in terms of sustainability (Givoni, 1998).
Wood is a renewable resource, yet there are no uniform guarantees that wood utilized is being replaced, if these new trees will continue to flourish in the same locations as before, or even if those trees are of an equal character. Steel, on the other hand, is infinitely recyclable with no loss of use.
One of the responses to this global challenge is the development and implementation of a process by which damage to the environment can be measured, and by which one can determine the part of the process in which most environmental damage occurs. Analysis of these stages has led to reliable data which predicts a buildings impact on the environment and to the development of newer, more eco-friendly materials which will serve the same purpose as older, traditional materials. In the case of steel used in the construction of the built environment, newer production processes have led to a kind of steel manufacture which is much less harmful to the environment.
House Quality The quality of houses helps to determine price of houses. The quality affects also safety of the house.
Sustainability Rate of resource depletion, recyclability, energy required in manufacturing, and comparison of different types of materials are important for overall sustainability. As long as key social, economic and environmental issues are maintained, green steel technology are not only sustainable, but necessary for the earths future.
Availability of financing The availability of cheap financing sources will provide funds to consumers to purchase houses. However, in the last three years the economy experienced a down turn which contributed to the consumers inability to purchase homes. This is because the source of finance became very expensive, trying the prices off houses down trend. The demand and supply curve for the last three years has been shifting to the left as shown in the graph below.
It is important to note that prices came down supply of the houses also reduced. This reduction is the net effect of reduction in source of financing.
Location Prices of various houses in eastern London become expensive as thee western sides of London were cheap. Houses in major town in United Kingdom were fairly expensive as compared to those in rural and distance suburbs. As the financial crises started affecting the macroeconomic factors people started moving to cheaply priced houses driving the price of houses in posho estates down. A bad location for house will have reduced interested buyers thus reducing the price downward.
Perception The perception of the people in the United Kingdom contributed greatly affected the price of some houses in the United Kingdom. People viewed manshionates semidetached houses and bungalows has cheap houses since they are easy to live in. this perception contributed to the changes in price in the area. Also people move around in the estate to find whether there is a house for sale in a reduced price or with a discount this is majorly because of the financial crises. This behavior affects the performance of houses in the market.
Social changes Social behavior has changed drastically in the United Kingdom because majority of people currently appreciate renting a house as opposed because the idea of acquiring a house is currently not as important as it was in 1980s. This also contributed to the downward trend of house prices in the United Kingdom.
FUTURE TREND OF HOUSE PRICES
With the recession of date, the U.K. real estate industry has been affected from the financial crisis from large lenders and brokerages, allowing the necessity for governmental and political infusion into the industry. The real estate sector experienced a 19 fall in price over 2008-2009, with large losses experienced in urban centers and high level of unemployment. With the fate of real estate at the hands of public policy, prices have been continually dampened by falling rents and lease provisions and an increased cost of funding for houses (House. (n.d.)).
Because the real estate is considered an essential, thus the UK Government has also implemented various strategies to restore consumer confidence. Whereas confidence in U.K. real estate s in general has plunged in last three years, many people continue to express confidence in the sector (Hassell, 2003). The future prices will be as shown in the chart below
Adapted from Walayat, N 2009
From the chart it shows the prices of houses will continue to come down to the value of 129,000 in the year 2012. These will a big fall from the prices of 2007 that were as high as 200,000. This will be considered as 16 decline per annum something that has never been witnessed before.
In order to stabiles market prices of houses various incentives should be implemented both fiscal and monetary. The government should encourage banks and mortgage companies to reduce interest rent but to increase creditworthiness evaluation of customers I order to allow many people access sources of financing to acquire homes. The government should also pass a law which will be used to compact complexities that have arisen due to the risks associated with the industry. Taxation has an impact on acquirement to development functions and outlook of the sector therefore it should be reviewed to make sure that the sector recovers.
If direct and indirect taxes in real estate are reduced there will be a resurrection of affordable housing, demand will increase and the government can claim to have fulfilled its responsibility of providing housing to larger number of people. It is known that profit margins in affordable housing are much lower than the mid and luxury segment but the state can for some time introduce tax holidays for low cost and middle housing which will increase demand and revive the entire sector, eventually leading to a big boost to the entire economy. The governments should give a tax holidays in real estate and infrastructure projects such as airports, highways, roads, ports and water supply projects. There should also be a move to encourage the government to extend tax holidays in the development of integrated townships. Such measures will go a long way in reviving the economy since a number of economic activities are generated from the real estate sector. If projects with lengthy gestation periods are exempted from the corporate tax provisions in keeping with the spirit of economic development, significant growth can be achieved in the sector.
Commercial real estate is considerably burdened with service tax and firms are on the constant look out for the government to either abolish or reduce the tax. Service tax is a considerable burden on consumers also in view of its impact on the final price of real estate products. Tax implications can result in the improvement of liquidity, which cannot be denied by any economist because such measures assist real estate firms to invest in new projects in addition to having extra time in repaying the loans taken for their projects.
As the UK economy begins to rebound, the ability to accommodate to economies of scale will translate into profound success for this industry. Accordingly, the major economic indicators relevant for this industry are the 3-month LIBOR-OIS spread and Prime Interest Rates.
Since the slow down of the housing market severely affects the financial market, and the economy, slowing down the number of foreclosures may be the first step in the recovery of the housing market Sprague (2008). As a first step, Banks should tighten their lending requirements and increase the interest rates to discourage people from borrowing to purchase new homes. However, lending to eligible applicants has to commence again. A combination of these two actions will help reduce the inventory of homes on the market and stabilization of house prices. Drop in inventory of homes will spur increase in the construction of new homes, improving cash flows and employment, and increased spending on housing and private construction. However, realization of the benefits of such actions will take some time (Smant, n.d.).
Foreclosure is a reality and needs immediate attention. Homeowners deserve to retain their homes especially that they have paid for them. Government legislations which assist the homeowners while easing the housing crisis, would be effective since it protects both, the people and the industry.
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