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Housing Supply and Demand in Financing - Essay Example

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Housing Supply and Demand in Financing

This issue has raised many discussions among scholars on the factors that influence the tenure decision and whether the decision is rational (Angel, Shlomo, and Sopon Pornchokchai, 1998).

If to consider housing as an investment, it is necessary to single out the qualities of the investment asset, (Edelmenn, 2000) which any investor will evaluate when making the investment decision. These qualities are the 'divisibility of holdings, security of real capital value and income, volatility of returns, liquidity of capital, the cost of purchase and sale and capital appreciation prospects'1. Thus, the main financial characteristics of an investment are whether the income and capital values are fixed or whether they are variable, and if they are variable, to what is the variation linked (Schon, 1997). Applying these investment characteristics to property, the real estate investment will have the following features. First, heterogeneity implies that in contrast with other financial assets, such as stocks and bonds, which are the same for particular company and particular issue,( Bachelard, 1998) all the housing units are unique and differ in size, location, age, construction, maintenance, tenant, surroundings and other features (Lindgreen, 1994). The fixed location of the property adds another important factor for consideration, as sometimes it will be the determining underlying feature for the value of the property as an investment (Scott, 1999). Supply and demand is an important part of housing finance because supply and demand dictate the overall need of houses overall (Schmidt, 1999). The need of houses therefore dictates price (Bahl, 1999)....
The need of houses therefore dictates price (Bahl, 1999). Examples of this can be seen in today's present economy as well as the economy of six years ago. Six years ago, houses were in high demand, especially in California. Thus, as more and more people obtained work in California and moved to the state, more and more houses were selling.
This drove the housing prices up in California because the demand for the houses in California were very high. Since California has always been a wealthy, industry-oriented state with the reputation of generating wealth for others, many individuals began to seek out their own wealth in that state and therefore moved into the state. As more and more individuals pursued this, housing prices soared as high as $750,000 in desirable places like Orange County. Houses in Los Angeles could cost as much as $1,000,000 for a standard three bedroom, two bath family home in a nice area.
Financing a home was very easy at this time, as the economy was good and people were able to get and hold jobs. Thus, credit unions were willing to work with customers. All kinds of payment plans were presented (Linn, 1993). These included inflated payment plans, interest only loans, 15 year loans, and 30 year loans. Many individuals were also able to opt for housing loans with balloon payments. At the time, all of this seemed like a great opportunity, but as many people recognize now, part of this willingness to allow so many people into homes eventually hurt the economy.
Many individuals were not able to pay for their houses, and this affected the economy overall. However, as the economic recession began to take hold, a change took place with the demand of houses. ...Show more
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Housing serves as a shelter for all the people and their family, satisfying their main physical need and holding the equipment people need for their daily routines. …
Housing Supply and Demand in Financing
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