The real estate market and the mortgage market are great
friends; they generally are seen hand in hand, wherever 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 grow
over these last few years.
If a potential buyer has the greater possibility of securing a
mortgage, the greater the opportunity to sell a home or buy a
home becomes; Whenever the opportunities increase for the buying
and selling of real estate, then the prices for real estate
increase. Can you clearly 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
home construction market, as well as the commercial development
of real estate.
The potential for problems exist when this all happens too
quickly, or when the growth 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. Much of the growth
in the mortgage market has been with interest only loans. Many
analysts put the interest only segment of the mortgage market at
almost 23%. That's a huge hunk of the entire mortgage market and
this segment has been responsible for most of the overall
growth. It would also 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 moment to look at the four areas that contribute to
this continued upward growth, and their impact on real estate.
The price of existing homes on the market is a pretty easy one
to figure out; if you have your home for sale, quite naturally
it will bring a comparable price to the other homes in your
area. How does this serve to drive real estate prices? This
concept works with a Domino effect, in that when one home
increases in value, it also affects the homes around it driving
the price, further upward.
The new home construction market is heavily reliant on building
material prices to determine the building cost and the
contractor's profitability. If building construction is on the
increase quite naturally, the prices of building materials are
on the increase; when you have 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
development of commercial property. In resort areas,
particularly the development of real estate property for
commercial purposes tends to quickly 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 extremely 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 many 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 reality,
many 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 potential 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.
About the author:
Tony Robinson is a Real Estate Investor, Webmaster and
International Author. Visit
http://www.ezy-mortgage.com/ for his
tips on mortgages.
