Dissertation Creation - The UK's original provider of custom dissertations and dissertation help...

Free Dissertations - Mathematics Dissertations

For The Best Case Scenario An Extreme Housing Price ‘crash' Was Assumed ...

For the best case scenario an extreme housing price ‘crash' was assumed coupled with very strong inflation (salary increases). The worst case combined high housing price increases, high mortgage rates and paltry salary increases. These numbers are perhaps on the boundary of credibility. Naturally one cannot expect the extreme cases to be sustained for any length of time.

Curr-ent
Best case
Worst case


Housing index
4%
-5%
8%


Bank rate
4.8%
4.8%
5.8%


inflation
2.8%
3.8%
1.8%










Results for key years are tabulated below:
base rates
best case
worst case

22
29%
29%
31%

23
27%
27%
29%

24
26%
25%
28%

25
24%
24%
27%

26
23%
22%
26%

27
38%
23%
51%

28
36%
21%
49%

29
34%
20%
47%

30
54%
24%
84%

31
51%
23%
80%

32
48%
21%
77%

33
45%
20%
73%


It can be shown (Appendix 1) that once the initial burden percent is calculated the formula:
Given B= initial burden (age 22)

a similar formula holds for the burden at age 30. During the years between the peaks the curve is a basic exponential decay curve:



One would expect the economic variables not to be independent but to have mutual influences as suggested by Meen. Using the figures from Meen an increase in housing prices is associated with an increase in inflation and a decrease in bank interest rates.

Decrease
Increase
Same
Rapid increase

Housing index
-5.0%
4.0%
0%
8

Mortgage rates
5.8%
4.8%
5.8%
3.8%

Inflation (salary)
1.0%
2.8%
1.8%
3.8%


The results below are consistent with previous findings:
Decrease
Same
Increase
Rapid increase

22
31%
31%
29%
27%

23
30%
29%
27%
25%

24
29%
28%
26%
23%

25
27%
27%
24%
22%

26
26%
26%
23%
21%

27
28%
35%
38%
40%

28
27%
33%
36%
38%

29
26%
32%
34%
35%

30
32%
45%
54%
63%

31
31%
43%
51%
59%


Conclusions
The burden of housing costs as a percentage of salary depends on house price inflation, rate of salary increases and mortgage rates. In general each new purchase increases the burden with the greatest burden being with the largest house. This was the third house purchased at 1.5 times the national average price.
The greatest financial burden was born by the couple purchasing their first house in 1997. Their third house created a burden of 61% of their salary. This was probably due to high housing prices more than counterbalancing the relatively low mortgage rates.
Housing prices seem to have a stronger effect on the burden of housing than do salary increases and mortgage rates. This finding bears further investigation.

Please note: The above dissertation snippet was written by a student and then submitted to us to display and help others. Thanks to all the students who have submitted their work to us.