Economics HW: News Report
Rita Cheung (4) & Jamie Keung (9) F.4C
House prices continue upward move
UK house price inflation picked up in September, according to the Department
of Communities & Local Government.
Prices rose by 0.8% in September, pushing the annual rate of house price inflation up
from 7.7% to 8%.
The cost of the average UK property rose from £197,631 to £198,552 between August
and September, the DCLG said.
Annual house price inflation rates rose in England, Scotland and Wales, but fell
slightly, from a very high level, in Northern Ireland.
Wales saw the strongest growth spurt, with annual price inflation rising from 7% to
10.3% in September. In England, the rate increased to 7.2% from 6.6%, while in
Scotland it edged up from 12.7% to 12.9%.
But in Northern Ireland, which has seen strong price growth this year, annual inflation
fell from 26.6% to 23.6%.
House price inflation rose in seven of the nine English regions and fell in the East and
South East of England.
The buoyant London market continued to lead the way, with annual house price
inflation hitting 9%.
Expectations exceeded
House price growth in 2006 has exceeded most analysts expectations, due to shortage
of supply and strong economic growth.
Last week, the Bank of England raised UK interest rates from 4.75% to 5% to help
quell inflationary pressures.
But according to Howard Archer, chief UK economist at Global Insight, the interest
rate hike may not take the heat out of the housing market.
"Current elevated mortgage activity and a shortage of supply in many areas
(especially London and the South East) means that house prices could well see further
significant increases in the near term," Mr. Archer said.
But over the long term Mr. Archer added that he expected house price inflation to
cool, due to the fact that property is becoming unaffordable to many.
News from: BBC News
Date: Thursday, 7 December 2006
Economics HW: News Report
Rita Cheung (4) & Jamie Keung (9) F.4C
Pictures about the news:
House prices are still rising across the UK
Changes in house prices
Summary:
There was house price inflation in United Kingdom, this means that there’s a huge
and permanent increase in the house price. This caused a supply shortage of house in
some of the areas in UK, also it created pressure to banks, and therefore the Bank of
England raised UK interest rates.
Explanation:
1.
In 2006, there’s a strong economic growth in UK, the salary of people increased.
Houses are superior goods, due to the increase in people’s salary, the demand for
houses increased. This caused a right-shifting of demand curve and the equilibrium
price of house increased.
Fig. 1
Economics HW: News Report
Rita Cheung (4) & Jamie Keung (9) F.4C
2.
People’s demand for houses still kept on increasing in spite the increase in house price
(new market price), this is because people expected that the house price will keep on
increasing, so people buy more house and plan to sell it in the future and gain profit
(“buy low sell high”). The demand for houses is greater than the supply of houses, the
new market price is still lower than the equilibrium price, there’s a shortage of supply
of houses / excess demand for houses in some areas in UK.
Price of
Houses
Market of Houses
S
D2
New Market
Price
D1
Old Market
Price
Shortage of supply
0
Q1
QS
QD
Quantity
Fig. 2
3.
When people buy a house, most of them need to lend money from the bank (mortgage)
because the sum of money of buying a house is huge. When the demand for houses
increased, the number of people mortgaging their property to the bank increased, this
gives pressure to the bank as the bank might not have enough current funds. The
demand for loan is greater than the supply of loan by the bank, therefore, there’s an
excess demand for loan, and the market price of loan (interest) is lower than the
equilibrium price of loan (interest). In order to restore equilibrium, the bank will
increase the interest rate to reduce the demand for loans.
Economics HW: News Report
Rita Cheung (4) & Jamie Keung (9) F.4C
Interest
rate of
Loans
Market of Loans
S
D
New Market
Price
Old Market
Price
Excess Demand
0
QS
QE
QD
Quantity
Fig. 3
The End