| Global House Prices Essay
Before I read the article Global House Prices, I had always assumed that the house prices in the whole world have always been on the rise. The housing prices have been on the rise for the last few years falling only a few times. These effects have been observed since the financial crises engulfed majority of the countries in the world.
The housing prices in Hong Kong have jumped most as compared to other countries. The government of Hong Kong had to intervene in order to mitigate the escalating prices in the prices of house. On the other hand, the highest fall in house prices has been experienced in Spain with a drop of 9.3%. It is important for the government to intervene when prices highly escalate in order to safeguard the interests of the citizens.
When determining whether a house is cheap or one, one should use two measures which compare the current prices with long-term average prices. The first measure is price-to-rent ratio which determines which rent goes to the investors. According to the article, there is overvaluation of 78% in Canada and 37% undervaluation in Japan. The other form of measure is the ratio of prices to disposable income per person. This shows that there is an over valuation of 35% in France and 36% undervaluation in Japan.
In America, the housing prices are monitored by the Federal Reserve. Over the past few years, the prices of housing have been dropping. Using the ratio of price to rent, the houses are 7% undervalued while using the price to income ratio they are 20% undervalued. This contrasts what I have always believed. I have always thought the housing prices in America were always high. When I compare to the average earning of most Americans, the rent they pay cannot be undervalued by 7%, In fact, the rent is overvalued.
The house price fall has affected countries across Europe. The most affected country by the massive fall in house prices is Spain. It has an acute decline of 9.3%. This has been brought about by the massive supply of housing in the country. The supply exceeds the demand and hence the low prices of the rent houses. The prices of housing however, have been on the rise in some European countries such as Germany. Germany has experienced a steady increase of 2.7 % in housing prices over last few years. The prices of housing in Germany are 17% undervalued. I attribute the rise in the prices of housing in Germany to the low productivity rate in the country. The people are not investing in housing and the population growth is low. This increases the demand for housing in the area and hence the steady rise in the prices.
The Bank of England is very much willing to advance mortgage credit to its people. This way they avoid the problems that arise when housing is expensive and few people are willing to buy. I think its important for financial institutions to finance the people who do not have money to own houses. When people have credit, they are able to afford them. This suppresses the excessive supply of housing and equilibrium is achieved between demand and supply rate.
I realize that house prices are not always on the rise. There are some places where they have been declining. The decline is attributed to over-supply of houses that exceeds the demand. I also think the global financial crises contributed to the downfall of prices especially in European countries. The part played by financial institutions is crucial as it has made it possible for low income earners to own houses.
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