Construction Economics Assignment

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The diagram below shows what happened to average house prices in the UK in the period 1983 - 2002. Initially prices went up rapidly until 1989. House prices recorded a growth of 7 percent in the year 1983 alone. House price inflation reached a peak of 34 percent in October 1988, when average house prices rose by 23.3% in one year alone.


Many people took out very large mortgages. In 1983, the average new mortgage was approximately 2.1 times annual average earnings. By 1989 this had risen to 3.4 times annual average earnings.
House prices were rising uncontrollably and bringing considerable inflationary pressures to bear within the economy. As a result, the government increased rates and reduced government assistance to home ownership. The impact of these measures plus a worsening economic environment drove house prices down and the housing market into a state of recession (Williams and Holmans, 1996).
In mid 1989 house prices started a downward trend for the next six years, falling by 12 per cent, before reaching a trough in July 1995.In the years 1990 - 1995 house prices fell by around 12.2%. Many people found themselves in a position of having negative equity on their property because the value of the mortgage now exceeded the property value. This meant many people were unable to move house without taking a loss.
Then, in 1996, house prices began to rise again. The UK housing market started to recover with a 7 per cent increase in prices. The low interest rates enjoyed by UK homeowners have reduced mortgage payments as a proportion of gross earnings for the average purchaser from 22 per cent to just 15 per cent. ...
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