The topic that I have chosen for my research proposal is based on house prices. I have chosen this subject because over the year’s UK house prices have risen so dramatically making it difficult for people on low wages to buy a house. This topic has caused a lot of discussion with buyers and sellers as well as banks that give out mortgages. It has also made it into the news and caused a lot of attention in the financial press. There are many positive effects to this as well as negative ones.
On the of the most obvious positive effects is that homeowners’ asset wealth increases as the price of their house increases and the most obvious negative effect is that people who are wanting to buy a house can’t because the prices are so high. The focus of this research proposal is to gather information that will help me to determine whether or not past examples and situations can be used to predict what will happen to the price bubble that the UK housing market is experiencing at the moment. I have collected some information to help me answer the question and also help me analyse it.
Literature review I will be reviewing journal articles and books that talk about the housing market and the effects it undergoes when a ‘bubble’ occurs. I will also be reviewing literature which explains the aftermath of the ‘bubble’ bursting and the consequences are. I feel this is a key point to clarify because from this I can see what past cases have been like. One of my main sources of information is the JSTOR: Economic Journal. One article I came across is ‘Booms and Busts in the UK Housing Market’, by John Muellbauer and Anthony Murphy.
This article examines the booms and busts of prices of second-hand UK houses using econometrics to analyse data from 1957-1994. It also goes onto mention the following: ‘It is now recognised that the increases in housing wealth which took place in the 1980s contributed significantly to the consumer boom of the 1980s. ‘ The above quote suggests that if the increase in housing wealth can have effect on consumer boom. If this was to have recognised early then there would have been failings in the consumer expenditure forecast which then led to errors in the macroeconomic policy (John Muellbauer, Anthony Murphy. 1997).
This provides useful information for my research proposal because it shows how past cases can demonstrate the importance of taking the housing market into account. The article also mentions two major booms in the housing market that took place in early 1970s and late 1980s. From this we can determine what may happen to the current situation in the UK housing market. Another useful article that I came over is on the BBC website, ‘Is the house price bubble set to burst? ‘ by Clare Matheson. The article talk about the current situation with the UK house prices and also tries to make some predictions as what is going to happen.
It starts off by mentioning the Bank of England is delaying its rise rate as it believed that house prices were unsustainable. It also goes on to mention that surveys that have been carried out suggest that the bubble is about to burst. ‘On Tuesday, London fund manager Tony Dye lived up to his nickname of “Dr Doom” by forecasting that the present property boom would “end in tears”. ‘ Above is an abstract taken from the article, talking about how the housing will suffer. “There are signs of a huge boom going on and basically these things always revert to more rational price levels,” he says
The above quote by Tony Dye suggests that there is soon to be some sort of drop in prices in the housing market. The article also mentions predictions by leading mortgage lenders like Nationwide and Halifax. Their findings suggest the market is heading towards a gradual slow down and that factors such as low interest rate and high employment rate will prevent a crash in the market from taking place. The topics covered in this news article relate to my question because it mentions predictions about the bubble in the housing market.
The predictions made by the experts helped me to determine whether or not the article was relevant to me. Another relevant article found on the Bank for International Settlements website. The article is called ‘Explaining Changes in House Prices’. The article talks about house prices in relation to consumer spending. It also suggests that the growth or slow down of the house prices can be dependant on global economic growth or slowdown. It goes onto compare and analyzes six countries and these are the US, UK, Canada, Australia, Netherlands and Ireland.