1Lesson 9: Principles of Real Estate Financing Principles of California Real EstateEconomics 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 FinanceReal 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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2Economics of Real Estate FinanceReal 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 FinanceInterest rates and federal policy»The federal government influences real estate finance, and the rest of the economy, through:°fiscalpolicy°monetarypolicyInterest Rates and Federal PolicyFiscal policy»Fiscal policy:°government spending°taxation°debt management»Set by Congress and the President, through legislation and the federal budget (and national debt).