The end of the Housing Boom

The following story describes a bigger issue that people should realize. The increase in the cost of mortgage lending as to do with the increase in interest rates by the federal reserve. The Federal Reserve has decided to raise the target rate in order to stop the increase inflation caused by rising prices. One of these reasons for the increase inflation expectation is the high cost of gasoline. I write about this issue because a lot people believe that the home prices will continue to rise regardless of the situation. They believe in this because of their ignorance in the market forces that control our financial system. However, people refuse to see that there are signs of at least a leveling effect on prices for home. The increase in vacancy rates therefore more housing supply. Secondly, there are high oil prices and increase inflation expectation therefore the high interest rates and therefore higher borrowing costs. Next will come greater supply and lowering of home prices.

This trend should concern people who have leverage their home for their investments such as second mortgages equity lines of credit, considering if the housing boom ends and their home values decrease they will be paying a payment on declines assist.

If I was a person with a high of leverage in the home I would continue to reduce my debt level in order to put at a higher equity level and lower my risk when home prices dramatically drop.

An opporunity to buy

However, if history following the same patterns when interest rates rise prices usually decline which could give an opportunity for people who thought homes were expensive now purchase homes at a more affordable price. When interests then decrease because of market forces home owners can then refinance to make their borrowing costs lower.

http://news.yahoo.com/s/ap/20051025/ap_on_bi_ge/mortgage_lending;_ylt=AgR1GwHutgBN1WKpePwD0QMO57EF;_ylu=X3oDMTBjMHVqMTQ4BHNlYwN5bnN1YmNhdA--