Business Economics and Management Science
UK House Prices: An analysis of price changes from 2007 to 2009
Word count: 1,294 of the allowable 1,320 (1,200 + 10%) excluding Atle page, sub-‐headings, tables, bibliography, and appendix
15 November 2010
In the past three years, the pricing trend of houses in the UK has been observed to rise unAl 2007, to crash because of the ﬁnancial crisis of 2008, and to recover slowly in 2009 (NaAonwide, 2010). One can argue that these prices are generally determined by the behaviour of four stakeholders: the investors, the ﬁnancial insAtuAons, the home owners, and the monetary authoriAes. This essay will succinctly tackle three main points: a) how these stakeholders are inter-‐related, b) how their acAons aﬀected the demand, supply, and prices of houses, and c) an examinaAon of the diﬀerent housing demand elasAciAes. As such, the essay will be divided into three parts: before the ﬁnancial crisis, during, and aYer.
source: Halifax & NaAonwide as cited on
Before the Financial Crisis: low interest rates, high demand for houses, high supply of credit Following certain events like the Dot Com Bust in 2000 and the September 11 a]ack on New York in 2001, the US treasury lowered the interest rate to 1% to keep the economy aﬂoat (The Federal Reserve, 2003). Because 1% is an extremely low return on investment, many investors who usually invested in government securiAes looked for other higher yielding opAons. On the other hand, ﬁnancial insAtuAons like banks were able to increase their borrowing at 1%. At this rate, they were gegng cheap credit and...