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CA_Principles_09[1]

CA_Principles_09[1] - Principles of California Real Estate...

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1 Lesson 9: Principles of Real Estate Financing Principles of California Real Estate Economics of Real Estate Finance » For a lender, a loan is an investment. ° The interest paid on the loan is the lender’s return. ° A riskier loan requires a higher rate of return (a higher interest rate). Economics of Real Estate Finance Real estate cycles » Real estate cycles: Periodic shifts in the level of activity in the real estate market ° Caused by changes in supply of and demand for mortgage loan funds. ° When supply of mortgage funds high, interest rates low. ° When funds are scarce, interest rates high ( tight money market ).
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2 Economics of Real Estate Finance Real estate cycles » Real estate cycles follow the law of supply and demand . ° Housing prices go up when demand is high and supply is low. ° Housing prices go down when supply is high and demand is low. Economics of Real Estate Finance Interest rates and federal policy » The federal government influences real estate finance, and the rest of the economy, through: ° fiscal policy ° monetary policy Interest Rates and Federal Policy Fiscal policy » Fiscal policy: ° government spending ° taxation ° debt management » Set by Congress and the President, through legislation and the federal budget (and national debt).
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