Econometric Analysis Of House Prices And Mortgage Rates: Focusing On The UK Housing Market (2006)
Econometric Analysis Of House Prices Dissertation – The focus of this study is to see how economic factors (Interest rates, Inflation rates and Gross National Income) affect the UK house prices. More specifically, how do the changes in house prices affect the UK Nationwide Mortgage rates? The author looked at quarterly data over the last 30 years from 1975 to 2004. In order to gain an insight into the relationship between house prices and the economic factors mentioned above, the author will estimate models for both UK house prices and UK Nationwide Mortgage rates.
The findings of this study show that UK house prices are affected by many factors, and that there isn’t a strong enough factor that causes house prices to fluctuate on their own. It is found that several economic factors collectively cause distortions and fluctuations in the UK house prices. According to the models, Gross National Income influences house prices substantially. Mortgage rates were found to be dependent on interest rates more than UK house prices. Further analysis of the cointegration and sationarity of the data suggested that the models used were valid long-run models.
It is often assumed that if house prices are increasing rapidly, consumption growth will be strong to. Higher house prices raise consumer confidence and therefore lead homeowners to feel wealthier; because of this newfound confidence people spend a higher proportion of their income on consumption (decreasing propensity to save). People were persuaded to increase their spending by borrowing money against the value of their house, as it seemed that this increase in price was going to continue to grow. Others sold their existing homes, and moved to more luxurious properties.
This increased mortgage borrowing occurrence would than offset the soaring housing market. Owning a property symbolizes collateral for homeowners, and borrowing on a secured basis against housing security is generally cheaper than borrowing on an unsecured basis, via a personal loan etc. So a rise in house prices makes more collateral handy to homeowners, which in turn may persuade them to borrow more, in the form of mortgage equity withdrawal (MEW), to finance desired levels of consumption and housing investment. The increase in house prices may be caused by a selection of shocks, including an unexpected reduction in interest rates, which will lower the rate at which future housing services are discounted.
- 10,000 words – 70 pages in length
- Excellent use of literature
- Excellent use of finance and economic models
- Well written throughout
- Ideal for finance and accounting students
1 – Introduction
2 – Literature Review
3 – Methodology
Basic Statistics and Testing
4 – Analysis
Unit Root Testing
Test of Cointegration