UK HOUSING MARKET

UK Housing Market

UK Housing Market

Synthesis should interest rates rise?

The recent rise in house prices is worrying. Since the low housing market in 1997, rising in real terms was higher than 70%. The specter of the 1993 recession and the price reversal arises in the comments. The fear of a speculative bubble, a runaway housing market portends a brutal downturn that would leave households, banks and institutional investors clueless meet their commitments. This would require many years to clear this market and financial agents. Inflation of asset prices would eventually lead to uncontrollable inflation, which house prices to rents is transmitted. The responsibility of UK public authorities would be to extinguish that fire area before it all burns, but a gradual increase in interest rates firm. We will show that the reason for concern is not there. The housing market is not subject to a bubble and rising prices, although strong, is not unreasonable. A strong domestic demand by lower interest rates, increased competition from financial institutions to acquire new customers, a breach in banking practices, evidenced by a lengthening of the loans in a market where supply is relatively inelastic in the short term leads to higher prices. The domestic demand has doubled in the UK case, foreign investment assets. The UK situation is not dramatic, even when we limit ourselves to the UK market, the margins of the normal cycle in property prices (Mathias, 2001, p. 16-24).

We will argue that the risk to financial institutions is low and the burden on households is not likely to fuel a depressive spiral. The heavy weighting of fixed rates in the formulas of household mortgages limit the risk of insolvency of UK households and default risk, exceptionally low, should remain so, even in the most pessimistic scenarios. The dynamism of rents is partly supported by the growth of the index of construction costs and partly by the challenged practices such as selling cutting. It currently provides a yield excluding capital gains on real estate which is immune to a downturn endogenous and brutal real estate market. Rising prices is a sign that monetary stimulus, driven by lower interest rates, works. It works better in UK the United States. The monetary impulse results in a lower savings rate that stimulates growth, more in UK. Our analysis is that rising house prices and debt is in fact the essence of the transmission mechanism of monetary policy. The rise in house prices is related to the realization of potential heritage hitherto, rendered liquid by the increase in debt of some households. This increased liquidity of real estate, thanks to changes in hand-funded banks, justifies the lower savings of final sellers: they are satisfied that their heritage is the current price. For households as a whole, rising prices and debt means lower savings and consumption growth higher than income. Rising prices will experience an end when the elements of demand will diminish, especially when the loan term will cease to grow, and that the market ...