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Last edited 09 Feb 2021
The term ‘housing market’ is used to describe the state of transactions in a particular area concerning the housing market stock. The housing market stock includes privately-owned houses and apartments, privately rented and public-rented accommodation, as well as housing association property.
A major factor influencing the housing market is the level of confidence that exists around the buying and selling of homes. Thus, a depressed market will not only involve fewer house-buying transactions and possibly lower house prices, but also lower investor expectations for the short – and possibly medium - term.
When low, mortgages will be cheaper and so more affordable. They tend to remain cheaper if the economy is weak, with no or fewer increases in interest rates. High interest rates increase the cost of mortgages, deterring some buyers from entering the market and making property less affordable.
Like all markets, housing is affected by the interplay between supply and demand. When the supply is high, prices tend to be lower and vice-versa. If not enough homes are built over an extended period, the result could be a shortage of homes and a rise in the number of people renting.
 Economic growth
Higher economic growth usually brings rising incomes, with more people having more money to spend on housing, increasing demand and pushing-up prices. However, this may in turn lead to increases in interest rates and so the cost of mortgages.
 Affordability (house prices/earnings ratio)
The more take-home pay is spent on a mortgage, the more unaffordable housing becomes. This can be a deterrent to potential buyers. Affordability is a much-discussed subject and potential buyers are acutely aware when homes are unaffordable.
When it is low – or non-existent depending on the home price – more buyers will be likely to come into the market. However, stamp duty has progressively increased as house prices have increased and it is now a very significant deterrent to buying property. In expensive areas such as London, stamp duty can be many tens of thousands of pounds, and home owners are more likely to 'improve not move' as investment in improving their property is likely to be returned on its eventual sale, whereas stamp duty is a direct and unrecoverable loss, often paid out of income that has already been taxed.
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