Abstract | The recent financial crisis has caused unprecedented decline in house prices across the globe, particularly in the UK. Most economic fundamentals have been affected by the credit shortage and failure of many mortgage holders to meet their principal and interest payments. It became apparent that the post Keynesian credit model embraced by many scholars could not sustain the downturn occurred within the mortgage market. This study aims to examine exclusively the correlation between the major economic fundamentals and house price changes both before and during the financial crisis. A multiple regression analysis will be used to test the relationship between a set of selected independent variables and house prices. This would enable us to identify the directions and extent of the relationship. The results show that most indicators, including interest rates and earnings, behave analogously in the pre- and during the financial crisis. However, the directions of relationship for some of the parameters have changed when the market is in crisis, especially in the case of loans extended to house purchase and consumer price index. |
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