For those in their 20s and 30s, the soft house market is a new concept. This is familiar territory for baby boomers. In the past few years, when interest rates were low and homes were cheap, first-time adults jumped into homeownership first. The leap turned out to be a big financial move, more than doubling investments in some housing markets. Almost overnight, that huge investment became a huge liability for many people.
How did that happen?
The housing market is cyclical. As with all aspects of the economy, supply, and demand play a huge role in the housing market. Because of the many factors that affect the market, the delicate balance of maintaining the same number of home buyers is impossible. Some factors snowball into others, causing the housing market to swirl in a particular direction.
Interest rates play an important role in home prices. When interest rates go up, your potential mortgage payments go up on the same house that cost 500 less before interest rates went up. As a result, people cannot afford to buy Housing Market Mississauga because their salaries have not risen in line with the interest rate. Therefore, the seller must lower the price of the house to find a buyer in order to sell.
When interest rates were low, people rushed to buy houses. There were not enough homes on the market for the number of people willing to buy them. Builders began to salivate over potential income and build homes that potential buyers did not support. Demand drove supply.
Lenders have started offering people many creative loans to take advantage of the housing market and help buyers acquire as many homes as possible. These creative loans include adjustable-rate mortgages and interest-only mortgages.
A variable rate mortgage holds a lower interest rate for a set period of time, which can be 1 year, 3 years, 5 years, or 7 years. This allows buyers to pay less in interest and put more money into the home’s true value. The problem arises when time runs out and the mortgage is adjusted to match the current interest rate.
With an interest-only mortgage, you only have to pay the interest on the mortgage. The principle will remain the same. This made for a really cheap mortgage for a really expensive home. There were three problems with the creative loans offered. First of all, it has helped people get more homes than they can actually afford. The second problem is that house prices fell when the housing market fell. People were actually more in debt than their homes were worth, and of course, they couldn’t afford it in the first place. The last straw came when interest rates were adjusted and mortgage payments rose, making it impossible to foreclose on mortgage payments and risk.
Economy, unemployment, and household income are other factors that determine home prices for obvious reasons. With layoffs and cuts in the auto industry related to rising gasoline prices, many people are scrambling to pay off their mortgages. The money to fill up your gas tank with petrol over 4 a gallon to get to a job that pays a mortgage has to come from somewhere.
The hopeful aspect of the current housing market is that it is cyclical in nature. At some point, supply will meet demand again. Waiting is a tough game. The biggest question on the minds of homeowners struggling to make ends meet is when will they turn around. Only time will tell.
