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How Real Estate Drives the Interest Only Mortgage Market

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					               How Real Estate Drives the Interest Only Mortgage Market


        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.

				
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