Final answer:
House Price Appreciation is a significant factor in house turnover rate as it increases home equity and potential capital gains, incentivizing homeowners to sell. The increase in equity, combined with the possibility of financial returns, can make selling a property an attractive option. Economic factors influencing HPA subsequently affect homeowners' decisions to engage in house turnover.
Step-by-step explanation:
Understanding House Price Appreciation as a Driver for House Turnover Rate
House Price Appreciation (HPA) is a key driver for the house turnover rate due to several fundamental reasons related to investment returns and home equity. When the market value of homes increases, homeowners are presented with an opportunity to realize capital gains from the sale of their property. For instance, purchasing a home for $200,000 with a 10% down payment and a mortgage of $180,000, and then seeing the market value rise to $250,000, leaves the homeowner with increased equity. This growth in equity, now at $150,000, can encourage homeowners to sell their house and leverage their gains, either to upgrade to a larger home, downsize, or invest in other ventures.
Another aspect to consider is the nonfinancial return on housing, which includes enjoying the 'housing services'—simply having a place to live. However, when the financial benefits, such as increased home equity and potential for capital gains, outweigh the nonfinancial benefits, homeowners might be more inclined to sell. This correlation between rising house prices and homeowner decisions to sell underpins why HPA is considered a critical factor in house turnover.
Moreover, major economic events can influence HPA, such as rapid growth in a major trading partner's economy, development of new profitable technology, changes in interest rates or the cost of imported goods. Each of these factors can have ripple effects on the housing market, indirectly affecting homeowners' decisions to sell. Therefore, monitoring HPA is essential for understanding the dynamics of the housing market and the tendency of homeowners to engage in mortgage prepayments through house turnover.