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If anything single-handedly caused the economic crisis that is now still being witnessed in the world, it would probably be the housing bubble.
Britain, like other countries, has witnessed a terribly downward trend in its housing sector, with many people still in desperate need of a place to call home. Cash or credit availability has become so scarce, as banks don’t seem to be lending money any more.
Under such gruesome conditions, it seems almost inconceivable for investors to ever risk putting their money in any house building company. Yet, in a sudden turn of events, the market has miraculously rallied behind these companies, and people are now wondering if the housing market is completely back on its feet.
While the housing market has experienced some improvements in the past few years, it is however not close to assuming that the market is back to its pre-crash level. House prices are still falling, although not as fast as they were before. And the question this raises is- what has happened that some of us are apparently yet to see?
The truth is housebuilders are making use of every possible strategy to survive the stringent market conditions they have found themselves in. Many of them even took advantage of the last recession to buy up cheap parcels of land that would prove to be highly profitable as the years go by.
Many home builders have also embarked on constructing more houses instead of flats (the demand for flats have slumped since the crisis).
Seeing as demand implies an interest that is backed up by the ability to pay at any particular time, the present market condition cannot be said to demonstrate a sufficientlevel of demand to drive the market, as mortgage lenders are increasingly declining to lend out money for house purchases.
Even the few mortgage institutions that are willing to offer loans often demand for the kind of loan-to-value that would see customers coming up with about 40 percent of the total finance amount on their own. The truth is demand has fallen.
And with demand shrinking, prices are expected to shrink even more in response to the market.Nevertheless, the government and homebuilders are both doing everything possible to prevent that from happening.
With interest rates being pruned down by the government, homebuilders are now directly lending money to people to enable them buy their own houses. Also, nearly a quarter of all new houses in the country are subject to some sort of shared equity arrangement with the builder.
But for how long will this economic ‘magic’, so to speak, go on? Not for long.
