The Demand For House Purchases

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(a) The main factors that determine the demand for house purchases: • Income – Houses are classified as normal goods, therefore the demand for them becomes greater as real income increases. • Substitutes – If there are cheaper alternatives (e.g. renting), the demand for house purchases will decrease. • Expected future prices - If prices are assumed to rise in a subsequent period the demand now increases. On the contrary, if there are expectations of later price decrease then consumers will retime their purchases and buy in the future. • Expected future income – The demand might go up if expected future income grows. • Population – The demand is bigger in larger markets. • Tastes – Consumers’ preferences affect the demand. If a good (a house) is considered to be of primary importance the demand for it will increase. • Interest rates – If affordable mortgages are available more people will have the opportunity to purchase a house, therefore the demand will increase. (b) The main factors that determine the supply of houses for sale: • Expectations of prices in the future – If prices are predicted to raise suppliers get encouraged to reduce supply now and sell the houses later with a higher profit. • Costs of production factors – When the prices of production go up, the minimum price that is acceptable to a producer rises, therefore the supply reduces. • The number of suppliers – When the number of suppliers is higher the supply is greater. • Government intervention –
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