How Real Estate Drives the Interest Only Mortgage Market. Useful Things to Keep in Mind
The real estate market and the mortgage market are great friends; they in general are seen hand in hand, everywhere they may go! One fuels the other’s ambitions. Never a truer statement has been made and they (the real estate and the mortgage market) seem to feed off each other, as they both have continued to increase over these last several years.
If a would-be purchaser has the greater possibility of securing a mortgage, the greater the chance to sell a house or acquire a house becomes; Whenever the opportunities increase for the buying and selling of real estate, then the prices for real estate increase. Can you plainly see the relationship now and how one drives the other? As the mortgage market has expanded, and the possibilities broadened, so have the prices of homes, the new house construction market, in addition to the commercial development of real estate.
The potential for problems exist when this all happens too fast, or when the enlargement in one area exceeds the average growth rate of other areas. This is the case with the real estate market and the interest only mortgage. A lot of the growth in the mortgage market has been with interest only loans. A lot of analysts put the interest only segment of the mortgage market at almost 23%. That’s the enormous hunk of the whole mortgage market and this segment has been responsible for most of the total growth. It would as well seem that it has played a tremendous role in fueling real estate prices. Is this a rollercoaster ride, waiting for the drop, if so, let’s hope we’re all buckled in!
Let’s take a second to look at the four areas that contribute to this continued upward growth, and their impact on real estate.
The cost of obtainable homes on the market is a pretty easy one to figure out; if you have your home for sale, pretty naturally it will bring a comparable price to the other homes in your area. How does this serve to drive real estate prices? This idea works with a Domino effect, in that when one home increases in value, it as well affects the homes around it driving the price, further upward.
The new house construction market is heavily dependent on building material prices to determine the building cost and the contractor’s profitability. If building construction is on the increase pretty naturally, the prices of building materials are on the increase; when you get an optimistic and growing economy, you will have increases in building material cost.
The other big drive in the real estate market comes from the progress of commercial property. In resort areas, mainly the development of real estate property for commercial purposes tends to fast affect the surrounding areas real estate prices. Many of today’s commercial mortgages have reached loan limits well over $1 million; in fact, some of the residential mortgage loans in certain resort areas are approaching the have the million-dollar mark.
Now, when you combine all of these contribute factors, a mortgage market that is particularly optimistic with its lending capital, you have the makings of a market segment, with the potential for a bubble effect. What happens in a bubble effect economy? The bubble continues to grow until it bursts. This is what a lot of analysts and economists fear: that too many consumers are betting the farm on a continual, optimistic spurt of growth. What could cause our booming economy to rupture? In fact, a lot of conditions can contribute and provide the needed catalyst.
Well, what if there is a continual increase in pricing but there is generally a continual downward spiraling of the ride we’re on? Well, if there should be a tremendous downward turn in the investment market, if there is a continuing loss of jobs in this country, or if there are any natural occurrences that lead to disasters that are beyond governmental or company control, you could see a possibility for disaster. Does that mean it will happen? No. It just means that the possibility exists. But in the defense of the housing and real estate market, if you’re going to be risky, that’s the place to be. It’s one of the safest risky businesses that exist.
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