How does the housing market impact the economy?
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Why do we need indexes for housing prices, stock markets, bond markets, etc.?
Indexes are just easy ways to summarize broad and complicated market movements into a few numbers that convey the general direction a market is moving.For example, if you were curious about how large U.S. companies have performed over the last month as a whole, you could choose a few hundred corporations, plug their price history into excel, and then average all of the aggregate movements of those stocks over a 30 day period..... Or you could just do a Google search for the S&P 500 index. Sure, even if the S&P goes up 5% in a month, certain companies may have gone up or down by 10% or 20% or more, the index still does its job which is to neatly summarize an overall trend.Indexes also provide information that actual investment funds can use for fund construction or measurement. Vanguard has a financial instrument called SPY which basically uses the S&P 500 stock-picking methodology to create a fund that will match the returns of the S&P 500 as closely as possible. If they meet or beat the performance of the real S&P 500, then they have succeeded.This is great for investors because now they have options for purchasing equities that are guaranteed to rise at the same rate as the large cap market as a whole. Other indexes exist for things like bonds, gold, mortgages, timber, etc. -- and if you are bullish on any of those asset classes or categories, indexes and index funds are the easiest way for you as an individual investor to bet on the appreciation of those assets.
Why has the housing market not corrected despite mortgage rates having dramatically increased?
Because people seem to feel that rates will not go up that much more because Trump will not let it happen…lol>>But also because the price of Homes are more related to the Salary or Income of potential buyers and not primarily interest rates..as for rental properties, they are more sensitive rates but if rents went up 4% year over year, don't expect values to come down..if the values are close to replacement value, it also provides a Floor of Value. Most cities in Canada except Vancouver and Toronto dont have excessive values…butI recognize that maybe 40–50% of people with lower incomes or bad credit are locked out of the purchase market in big cities so there is upwards pressure on rents. Immigration flows in large canadian cities also sustain demand. The Best deals are outside the major Cities and if you work mostly online, you may want to consider relocating outside the big cities if you don't need to be there.However, values will go up in major cities until people realize that they no longer have to live there…because they increasingly work online…and maybe just one day a week in the City in Meetings or Events.Love Life Loud and Cleat
What is the keynesian arguement? relating to the housing market inpraticular?
Wow... too lazy to even look it up on Wikipedia eh? Keynesian economics - the invisible hand theory. Free markets guided by government monetary policies, or the invisible hand. In reference to the housing market, the key driver of supply and demand has been the reduction of interest rates as a response to the economic shock endured post-911. As interest rates reached low levels, people took out more loans and bought lots of houses, thereby raising the average price of a house. The problem was, that most people, instead of buying traditional long term fixed rate mortgages, used variable ARM's instead that had a durability of 3, 5, or 10 years. Once they expired, the interest rate on their loans adjusted to the current interest rate, which was by this time double than what it was before: meaning double the payments! Anyways, back to Keynesian principles - the gov't should bail out the slowing economy as a result to this credit crunch problem but I'm afraid these efforts won't do much good. People are tapped out of credit and simply owe too much, others have bad credit and are even under bankruptcy, and banks have turned to restrictive lending policies as a measure to reduce further losses. Simply lowering the interest rate by the Fed Reserve won't do much good. Another key principle of Keynesian economics is that the gov't spends money on infrastructure to boost the economy. Well, we can argue all day whether Bush is actually doing us a favor by invading Iraq to secure cheaper oil but I'm afraid this is the opposite of what reality is telling us. We keep pumping our tax dollars into the war, and if you ask me, it ain't paying any dividends. Well, maybe to the oil execs and other powerful people in the Bush private circle, but certainly I ain't getting nothing from it. And those bastards are using my tax dollars!
Why do mortgages interest rates change?
I am confused. I know there are ARM's, and that lending companies sell their mortgages to others to collect payments and so that their books look good at the end of the year. I just don't understand a few things: 1 - if the Fed has cut interest rates, wouldn't that rate cut trickle down to the mortgage industry? If so, why would mortgage interest rates increase? 2 - Were people informed of the "ballooning" that was going to happen? 3 - Why did lending institutions issue mortgages at adujustable rates knowing that they were going to increase out of peoples budgets? Any explanation of what is happening would be appreciated. Thank you!
Would the housing market have collapsed in North America if Shariah was used as an alternative to traditional home mortgages?
Existing answers I believe provided sufficient answers. Just want to add that it was a bubble. One doesn't necessarily need leverage to create a bubble but availability of leverage increases the pace of bubble formation. Islamic finance could provide shariah compliant leverage and that can increase pace of bubble formation. The bubble in Dubai was financed mainly through shariah compliant financing. However Shariah compliant financing wouldn't allow derivatives etc that were a major reason for the huge size of US speculative bubble. Bubbles are part of human nature and economic cycles. Bubbles in shariah compliant economy are expected to be smaller in size due to stricter compliance requirements and forbids derivates.You never know you are living in a bubble till it bursts
Why aren't Chinese people afraid China's housing market will burst?
Simple, unlike USA housing crisis which is mainly caused by subprime mortgage when homeowner defaulting in their debt. This problem is caused by loose regulation for people with less than qualified financial situation to own house when their ability to pay for the house installment is questionable. Bank then sell this house mortgages as derivative financial products to investor. When investor try to cash in on their investment they realize that they hold to worthless piece of investment because the creditors of this houses unable to pay/dafaulting, this cause the bubble to burst. Rating institution like s&p also responsible for this subprime mortgage crisis because they give high rating to this mortgage when actually they worth much less than they suppose to.Housing problem in China on the other hand is quite the oppsite. There is a lot demand for house especially in tier 1 city like Beijing, Shanghai,and Shenzen. People willing to pay higher than market value and in cash. High house price in this city also meant to discourage people to move there because of overpopulation and redirect them to tier 2 or 3 city. Chinese also believe real estate investment as one of the safest investment other than gold.So you see there is fundamental difference between housing problem in USA and China. USA problems caused by subprime homeowners that dafaulting on their debt and cause housing market to collapse. China have a lot of housing demand especially in tier 1 city while the supply is limited thus the price of the house skyrocketing and the buyer of this house usually pay in cash. China also don't have pyramids scheme like derivative financial product made out of subprime mortgage like in USA.
What are some things to consider, in terms of everything, mortgage, conditions, etc., before buying a house in Canada?
Well, there are a lot of things to consider before applying for a mortgage, especially when you are a first time buyer.For instance, if you want to get an A-paper mortgage loan with the best interest rates, you should aim for a credit score of at least 600 (650 for insured mortgage). The minimum down payment is 5%. However, if you pay less than 20%, your maximum amortization will be 25 years.Another thing is the money used for down payment - they can't be drawn from a personal line of credit, such as credit cards or other loans. You can however use a financial gift (limited to your immediate family) or pull money from your RRSPs, but only to the limit of $25,000.What you also should keep in mind is the fact that if you are self-employed, the income you write off won't count to the amount you can claim. For instance if you make $100,000 and you use $80,000 as a write-off, you may claim only $20,000 at - for example - Canada Revenue Agency.There is of course much more to it. I've published a blog post "A Guide to Mortgages for Toronto's First-Time Homebuyers" covering this topic a week ago, which was made in collaboration with an acredited mortgage professional, of you want to read more about it.