The demand-and-supply model as below, we need to try and explain the story about the housing market contained in the following Extract below... (around 900) Extract 1 - UK house prices soar to record high despite Covid crisis House prices in the UK jumped to a new record last month [August 2020], with the average price of a property rising beyond 245,000, according to one of Britain's largest mortgage lenders. But Halifax, which is part of Lloyds Banking Group, cautioned that such strong price growth was unlikely to continue as unemployment was expected to keep rising and household earnings had been reduced by the Covid-19 pandemic. The average price of a home rose 1.6% in August from July to 245,747, Halifax said in its monthly house price report. This is up 5.2% from a year earlier, the fastest annual rate since late 2016. Russell Galley, the managing director of Halifax, said: "A surge in market activity has driven up house prices through the post-lockdown summer period, fuelled by the release of pent-up demand, a strong desire among some buyers to move to bigger properties, and of course the temporary cut to stamp duty." Estate agents have also reported that buyers are looking for bigger properties after a rise in homeworking, and coastal and country homes are particularly in demand. Galley added: "Notwithstanding the various positive factors supporting the market in the short term, it remains highly unlikely that this level of price inflation will be sustained. The macroeconomic picture in the UK should become clearer over the next few months as various government support measures come to an end, and the true scale of the impact of the pandemic on the labour market becomes apparent." The pandemic drove Britain into its deepest recession since records began. Household incomes have suffered as many people have lost their jobs ... and economists expect unemployment to rise sharply ... As a result, Galley said: "We do expect greater downward pressure on house prices in the medium term." The EY Item Club, a leading economic forecaster, estimates house prices could fall by 3% by early 2021. Howard Archer, its chief economic adviser, said the group "does expect housing market activity to gradually improve from early 2021 as the labour market stabilises then starts to modestly improve and the UK's economic recovery continues" ... Other surveys have also shown a pick-up in the housing market since it reopened in May, with prices boosted by pent-up demand and Rishi Sunak's stamp duty holiday for properties up to 500,000 in England and Northern Ireland. First-time buyers are struggling, however. According to the comparison site Moneyfacts, there are only 76 low-deposit mortgage deals available, down from 1,184 in March, and fixed rates on them have gone up. The average rate on a two-year fixed mortgage at 90% loan-to-value has risen to 3.54% over the past six months, from 2.57%. The average deposit for first-time buyers has risen by a quarter over the past decade to 47,059 - about a fifth of the average house price. To raise such a deposit over five years, borrowers would need to save 780 a month. In addition, Barclays restricted how much it will lend to homebuyers. The bank has limited loans to 4.49 times income, from 5.5 times.

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The UK housing market as depicted in Extract 1 reflects a dynamic interplay of demand and supply factors The surge in house prices reaching a record h... View the full answer