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Case study- Use the demand-and-supply model to explain and discuss…
Case study- Use the demand-and-supply model to explain and discuss the points about the housing market described in the extract.
Extract: UK housing market expected to stabilise in 2022 after bumper year
The year ahead could bring more stability to the UK housing market after a bumper year in 2021 when frenzied homebuyer activity pushed prices to record highs.
A stamp duty holiday that ended in 2021 helped to fuel about 1.5m house purchases across the UK last year, the highest number since before the global financial crisis.
Huge flexible working changes also prompted many people to relocate.
According to trade association UK Finance, 2021 was the strongest year for mortgage lending since 2007. It estimates that £316bn of home loans were given, the highest figure since the £357bn recorded 14 years ago…
In two years’ time, a rump of five-year fixed-rate mortgage deals will end, and borrowers will be looking to refinance these loans.
…With house prices reaching record levels in 2021, housing affordability for first-time buyers may continue to be stretched.
Higher outgoings generally from inflation, which hit 5.1% in November, could mean some people have less income to spend on their mortgage.
…According to the property professionals’ body Propertymark, there were just 20 homes available on average per estate agency branch by November 2021, the lowest figure in records going back two decades.
Propertymark said the imbalance between demand and supply had helped to drive up house prices. Thirty-eight per cent of homes sold for more than the asking price in November.
Propertymark’s chief executive, Nathan Emerson, said: “Agents are not seeing any signs that demand will slow in 2022.
“The question then remains, how does the market encourage new stock? Many sellers wait to see something they like and will market on account of having found”.
Rightmove’s director of property data, Tim Bannister, said: “It’s been a frenzied property market over the last 18 months, with changed housing needs driven by the pandemic inspiring many moves and lifestyle changes.
“However, while the pandemic is still having an ever-changing impact on society, we expect a housing market moving closer to normal during the course of 2022.
“A closer-to-normal market means a slowing in the pace of price rises, and a better balance of supply and demand for homes.
“We’ve seen a jump in the number of owners requesting valuations from agents with a view to marketing their homes, which suggests some fresh property choice could be coming to market.
“This will suit movers who may have held back from entering the hectic market during the last 18 months”.
Mortgage rates edging up could also dampen demand …The Bank of England raised interest rates from 0.10% to 0.25% last month.
Source: The Guardian (2022)
Guidance – The Part B question asks you to use the demand-and-supply model to explain the story contained in the news extract about the housing market.
When answering the question, it is important to outline the main points about the demand-and-supply model.
When writing your essay, consider whether the extract refers mainly to housing demand or housing supply and distinguish between movements along a curve and movements of a curve. As part of your answer, you should consider the different factors mentioned in the extract that have an impact on demand or supply curves such as income and affordability. You should also think about different parts of the housing market when examining the extract. Remember to link the issues raised in the extract to the relevant parts of the module material.
As you can use up to words, make sure your answer is in essay format – with an introduction and conclusion.
Housing is covered in Week 16 and 17 of the module materials. In Chapter 6, see in particular Section 4.3 on affordability and Section 7 on the demand-and-supply model. Week 17, Sections 3 and 6 are also relevant.
Please note that it is not necessary to draw demand-and-supply curves for your answer, but you may add a diagram if you wish. You may also refer to Figure 1 below in your answer.
Figure 1 Demands-and-supply diagram
If you do refer to this diagram please cite it as ‘Figure 1’, and outline which curves you are referring to in your essay (supply curves S1 and S2 and/or demand curves D1 and D2). You may also refer if you wish to any figures given in Chapter 6 or Week 17 (for example, Figure 6.6(a) and (b), Figure 6.7(a) and (b), Figure 6.8 or Figure 6.9).
