Worksheet on the Housing Market (Tutor Version)

This worksheet aims to use the housing market as an illustration of supply and demand theory. It could also provide some source material for a piece of coursework on this. This page gives you answers to the worksheet and some suggestions for further work students could try.

Students could be encouraged to draw demand and supply diagrams for each of the above if they need practice.

Step 1 - Basic terms

Go to the internet site Houseweb (http://www.houseweb.co.uk/house/index.html) and browse it to find the answers to the following questions -

1.....What is a mortgage? A loan to buy a house. The issue of security could perhaps be raised here, and the consequent effect on interest rates for house purchase.

2...Who would you go to to get a mortgage? A bank or building society. The issue of how the distinction between them has blurred with deregulation of the financial markets could be raised here and could lead on to a discussion of the differences between them.

3...How much would they allow you to borrow? Up to 90%. Discussion of why this is the case may be fruitful here.

4....What is the current mortgage rate and what is likely to happen to it over the next few months (see the 'recent news' (http://www.houseweb.co.uk/house/news/index.html) section) ?

Step 2 - Prices

Houseweb also has details of houses for sale, and house prices. Use this link again to fill in the following information - Houseweb (http://www.houseweb.co.uk/house/index.html)

Have prices gone up or down in the last twelve months? What do you think has caused this?

This section could be used to promote discussion of the current state of the housing market. Any recent experiences students may have could be useful anecdotal evidence. Many of the building societies have good up to date information on the housing market (particularly the Halifax and the Nationwide) - perhaps students could be encouraged to write or ask for it from their local branches.

Step 3 - Determinants of demand and supply

To analyse demand and supply further, it is important to understand what causes them to change. The factors that affect each of them are known as the determinants of demand and supply. Try to think of all the things you can that may affect demand for and supply of houses, and list them below:-

INTEREST RATE - The cost of a mortgage is set by the rate of interest that is charged on it. This may be set for a certain number of years, but will normally vary. To find out how interest rates have changed, go to the ONS data on Biz/ed. (http://www.bized.co.uk/dataserv/ons/data/data.htm)

From this identify periods over the last few years where you might have expected demand to be high, and where demand might have been low.

INCOME -

Go to the ONS data on bized (http://www.bized.co.uk/dataserv/ons/onshome.htm) to fill in the table below for the level of economic growth. In the third column identify how you would describe the performance of the economy in that year from the four words given, and in the fourth column put what effect you would expect that level of growth to have on the demand for houses.

Step 4 - Further study

To try to work out further what has happened recently to the housing market and what may happen in the future, you may want to browse some of the links below. Consider particularly the following issues:-

the present and expected level of economic growth
consumer confidence
interest rates - now and in the future
the willingness of people to sell
budget changes (in tax relief on mortgages)
the level of unemployment

As we have seen all of these will affect supply and demand in the housing market and may push prices up or down. Here are some links to try:-

• HM Treasury (http://www.hm-treasury.gov.uk/)
• Nationwide Building Society (http://www.nationwide.co.uk/)
• Houseweb (http://www.houseweb.co.uk/house/index.html)
• The Times (http://www.timesonline.co.uk/) (you have to register for this - check to see if your school already has)

COURSEWORK

The housing market is an area that lends itself well to coursework. Possible areas for study could include:-

• The link between interest rate levels and house prices
• Different interest rates offered by different lenders or types of mortgages
• Changes in house prices over the years
• A local study of prices - one region against another?
• House prices in different areas of a student's local town
• Different interest rates over different time periods
• Building costs - how they have changed and how have they affected house prices?
• The rented sector - comparison of rents for different areas