Economics Homework Help Example: Are the Melbourne’s housing prices overvalued? Why or why not?

The pricing of any commodity is a function of demand and supply. Melbourne housing market also follows the same economics. The peak period of undersupply that drives the prices upward in Melbourne has already been passed in 1994. Currently, the supply is more than demand  and it is because of this reason construction in Australia is done at lesser rate than required supply rate of 140000 dwellings per year. This also drives the prices downward as clear from the price trend in last ten years. It also shows that it follows upward trend in last ten years except in 2011 and 2012 due to reason explained above.

No doubt that  the price decreases in last two years, but the important question is whether the falling price is affordable and whether it is in the range as per income of Melbourne’s citizens or not. Let’s answer this question with the help of numerous microeconomic dynamics provided by our best microeconomics homework help experts from all over the world. If the house price is compared to income ratio, it can be concluded that the Australian market is on a higher side and is 30% higher compare to current income level . It is amongst the highest if we compare it with other developed countries.

But if we compare the countries on the basis of price per square meter, it is amongst the lowest and is affordable because of the larger average house size compare to other nations of the world. The average size is 243 Metre square compared to 137 square metres in case of Denmark. It is because of this reason, it is one of the cheapest places to live in as per House price to Wage ratio adjusted for House size as told by our experts for best Macroeconomics homework help (Clifton, 1977)

Now, if we consider affordability, we found that repayment as percentage of housing loan is within the average of last 30years. It means the new house is within the reach of people of Australia. However, if we leave interest adjustment, the figure is frightening and is showing that buying house is a big problem for Melbourne’s people . It shows that it rises sharply in last 30 years and making it one of the highest amongst its international peers.

Let’s look at the housing affordability index and we found that it is on increasing trend due to decrease in mortgage rate. This will definitely improve the investors’ sentiments and will drive the prices upwards. But the increase in Govt. taxes and all will definitely check the prices in long term. Besides these favourable taxation system and cultural factors also helps in driving the price upwards. (Clifton, 1977)

Hence, the above analysis as per our best Economics Homework Help experts clearly shows that Melbourne’s house market might looks expensive on international level as shown by house price to income ratio but is actually less when viewed on square metre basis due to larger houses size. It is because of this reason prices also appear more reasonable when to price to wages ratio are included on the basis of house size. So, Melbourne’s markets are not overpriced if we consider both domestic as well as international factors. It is still better compare to many other developed countries of the World. (Aumann, 1966)