Macro & Micro Economics Essay Example | Topics and Well Written Essays - 2000 words - 1

Macro & Micro Economics - Essay Example The characteristics of the market include durability, heterogeneity, high costs of transaction, long time delays, an investment as well as a consumption good, and immobility. The housing market possesses the importance of second hand transactions. According to the largest lender of the country, 5% of the total transaction is for the purchase of new properties while the rest is for purchase of either old or modern property. Two reasons can be accounted to assess the importance of the housing market for the economy of UK. The first reason states that the purchasing of houses is one of the biggest single purchases for the household and the purchased commodity represents the biggest single item of the wealth of the consumer. The changes in the prices of the houses have the potential to affect the entire economy. Current UK housing market The real estate industry is suffering from another wobble as the lenders are raising the rates of mortgage. The potential buyers are feeling the heat of consumer squeeze. Analysts are of the opinion that it is going to be a tough year ahead and the prices of the houses are taking the declining curve. The market outlook reports that the average price of the new properties failed to take the rising curve in the months of April-May, 2012. The market is driven by the release of equity. According to the nationwide house price index for the month of April, the property values have declined by 0.2 percent. It also states that the house prices are going to fall further as the households are uncertain of any possible recovery in the economy. The lenders are putting double squeeze on the home owners. The experts of the industry concluded that this is the greatest threat for the industry and it has come at the time when the economy was showing the signs of recovery. The seasonally adjusted net balance of headline price recorded a slip of 19%. The newly agreed sales value turned to negative again. The price outlook of the three months declined in the month of April and net balance witnessed a drop from -3 to -17 (RICS, 2012, p. 1). Several economists have noted that the housing market has moved out from the impacts of business cycle for the major economies including that of UK (Jones, Colin and Watkins 2009 p.1). Some writers opined that the housing market of the country is correlated with that of the economy while some others opposed it. Some writers concluded that the market is dominated by the investors and that is why demand may be artificially high or low for a long time. The interest rates act as the key economic variable for the housing market and the level of the interest rate will have impact on the demand for housing as it has the potential to determine the cost of credit for the buyers. In order to boost the economy, the interest rates have been set at a lower level. The different stages of supply and demand controls the housing market and so the market for UK is same as the market as in any other part of the World. There are two potential risks that are associated with the housing market. The first is the interest rate and the second one is mortgage indebtedness. The borrowing costs are a significant factor that determines the rates of mortgage and the ability to pay back the loans. The repayments of the mortgages become expensive as the interest rates rise and the previous crashes occurred due to this reason. The offered mortgages vary from nominal fixed rate to variable rate or index