Land Values and House Pricing Trends - Essay Example

The changing market scenario and the sudden boom in the housing markets provide a good basis for research in this field to study the fundamental causes of its demand and supply. This research paper seeks to review the influence of these fundamental determinants of house prices including the buyers’ disposable income, interest rates, availability of housing credit and demographic factors to study the house price dynamics.In order to derive logical conclusions from the study, the quantitative model chosen for the purpose of this research seeks to draw on the standard variables by considering some of the transition-specific factors such as the profound transformation of hosing market institutions as well as the availability of services for housing finance in CEE, improvements in the quality of newly constructed housing and the increasing demand for housing in this part of Europe by residents from other parts of Europe.

There are several factors that influence housing prices. According to a 1998 Federal survey, nearly 66.2% of American households are homeowners and 33% of the household net worth is attributed to housing investments1. There has been significant appreciation in the American stock markets in the past two decades leading to a simultaneous increase in the American household income. The impact of a well functioning financial market on the trends in housing prices holds critical value to researchers and hence several studies have been carried out to measure the correlation between housing price trends and the aggregate financial market conditions.

The major factors influencing housing prices include changes in population, disposable household income, stock price appreciation as well as mortgage and interest rates. Several studies in the past on the trends in housing prices and factors driving housing prices. According to the data collected by the European Council of Real Estate Professions, in 2005, the average house prices per square meter in the capital varied between 800 -900 euros in Bulgaria and Lithuania, from 1100 – 1300 euros in Hungary, Poland and the Czech Republic and up to 2000 euros in Croatia and Sweden while the house prices during the same year were estimated to be around 1500 euros in Germany, Belgium and Austria, 3000 euros in Italy, Netherlands, Sweden and Finland and over 5000 in Spain and France.

Such vast differences in house prices between the countries could be attributed to the strong development in conventional house price fundamentals.