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How Interest Rates Affect Property Values

How Interest Rates Affect Property Values | Economics | Scoop.it
When interest rates fall, real estate prices tend to increase. Why? Find out here.
Luke Maynard's insight:

The preceeding article explains the effect of interest rates on property values. Mortgage rates can be either variable or fixed, fixed rates are set and unable to change despite potential changes in the national interest rates. Variable mortgage rates are usually fixed for a pre-specified duration of time and after which the rate is dependant on the time specific benchmark. 

The article outlines the 3 parts of the mortgage production line. Primarily there are the mortgage originators. They are the ones who loan out the money to the public. The mortgage originators are in the form of banks, credit unions and mortgage brokers. They compete with eachother just like companies, all trying to maximise profit by setting interest rates appropriately to increase revenue. 

The other 2 parts are the aggregator and the investor. The aggregator purchases newly originated mortgages from other instituitions. They pool similar mortgages together to form Mortgage backed securities. These are then sold on to the investors. The price that the aggregator sells the MBS's determines how much they are willing to buy the newly originated mortgages for. 

Investors in MBS include; pension funds, mutual funds, banks and hedgefunds. 

To a large extent investors determine interest rates on MBS's that are sold to consumers. As it is a free market, this determines the market clearing prices that investors will pay for MBS's. From the data collected through the mortgage industry concerning the prices that the investors are willing and able to pay, the interest rates are formed.

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The U.S. National Spending And Debt

The U.S. National Spending And Debt | Economics | Scoop.it
Just like any average American household, government overspending can carry on for extended periods by rolling over debt and borrowing more and more money in what seems like a never-ending game of chasing our tail.
Luke Maynard's insight:

This article describes national spending and debt in the United States. The article explains that the U.S. government have borrowed a lot of money from central and foreign banks. Usually this would not have been a problem however they have spent a lot more than they earned, thus placing them in substancial debt. This debt was allowed to grow as the government borrowed more and more money in an attempt to clear other debts. This circle continued and now the U.S. government reached a deficit of 19 trillion U.S. dollars. The article also claims that despite this enourmous debt the economy would have been far worse off if they hadnt spent as much as they did. The reason for the spending has been due to a slowing down of GDP growth rate, as the article shows, the U.S. have only had 2 years of economic growth since the late 1990's. This led to the government to take matters into their own hands and attempt to stimulate economic growth through programs such as The Bush Tax Cuts. This spending caused ineivitable debt and now it is believed that the U.S. government will never be able to balance out their deficit.

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Opportunity Costs: College or Work?

Opportunity Costs: College or Work? | Economics | Scoop.it
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This article discusses the question whether or not it is more economically beneficial to go to University than go straight into the workforce out of school. In the example used in the article, 2 people go down the different paths, one to uni and one to work. Assuming that the person who went to work earned $30,000 a year and that the uni student completed all four years, the opportunity cost between the two people would be $191,440. Opportunity cost is a measurement of the benefits forgone of the alternative choice. 

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Protect your portfolio from inflation

Protect your portfolio from inflation | Economics | Scoop.it
The Federal Reserve recently announced that it would engage in its third round of "quantitative easing" by purchasing $40 billion per month of mortgage-backed securities to spur economic...
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Quantative easing is a method used by cenral banks to prevent a decline in the money supply. it is carried out by buying specified amounts of financial assets from comercial banks and other private institutions. This therefore invreases the monetary base. However by doing this increases the risk of inflation as you can see from the article. Inflation decreases the value of money meaning that the same amount of money would buy less than it would have prior to inflation. Despite this growing fear of inflation, the consumer price index (CPI) is actually far lower than the long term average, it has only increased 1.7% over the last year.

 

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Easy come, easy go

Easy come, easy go | Economics | Scoop.it
BRITONS have had some good economic news to celebrate over the past few months. Unemployment is falling, house prices in England hit a record high in July and...
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This article shows the effect of the Olympics on the economy. It outlines the boost in the tourist industry as a result of the Olympics, showing a general increase in spending by foreigners in Britain. Furthermore this tourism has helped reduce unemployment as the Olympics opened up thousands of jobs in the service sector.

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What Is Fiscal Policy?

What Is Fiscal Policy? | Economics | Scoop.it
Learn how governments adjust taxes and spending to moderate the economy.
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This article defines and explains Fiscal policy and its role in steadying the economy. As the article states, Fiscal policy is the means by which a government adjusts its spending levels and tax rates in order to influence their economy. Fiscal policy derives from John Maynard Keynes' theory that a government can influence macroeconomic productivity levels by increasing or decreasing tax levels and public spending, this is known as the Keynesian theory. By doing this it also influences inflation rates and employment rates as well. 

The article goes on to explain how it is very important to find a balance between changing tax rates and public spending. The potential detrimental effects are that public spending might increase due to a decrease in tax rates which would put more money in the economy, this could lead to inflation as prices would go up due to the surge of the money supply. To increase one would have the adverse effect on the other.


 

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Henmania

Henmania | Economics | Scoop.it
Heading to the other side, in huge numbers ROASTED, fried or served with noodles, chicken is on its way to becoming the world’s favourite meat. Diners currently...
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The article above outlines an increase in demand for poultry, faster than that of pork and other meats. This increase in demand is due to an increase in agregate income, meaning that people have an increased value of disposable income and therefore can purchase more goods such as chicken. In this sense, poultry is a normal good, this means that as real income goes up, demand for the product increases as well. Although having said this, the article claims that the reason chicken has been so popular recently is also due to the high price of substitute products (other meats) eg pork and beef, this is because the cost of production is far lower.

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UK mortgage approvals at highest level in five and a half years

10.28am GMT

UK mortgage approvals highest in more than five and a half yearsMortgage approvals increased by 5.3% in September to the highest level in more than five and a half years. Photograph: Russell Boyce/Reuters

UK mortgage approvals for house purchases (i.e. excluding remortgages) rose 5.3% to 66,735 in September, from 63,396 in August.

It was the highest level since February 2008, before the global financial crisis intensified in September that year with the collapse of US investment bank Lehman Brothers.

The Bank of England data will be taken as a further sign that Britain's housing market was warming up even before the second phase of the government's Help to Buy scheme was introduced earlier this month. However, mortgage approvals are still below pre-crisis levels, with monthly approvals averaging above 100,000 in 2006 and 2007.

Howard Archer, chief UK economist at IHS Global Insight, had this to say on the Bank's data:

The marked increase in mortgage approvals in September provides compelling evidence that housing market activity was already gaining appreciable momentum even before the Help to Buy mortgage guarantee scheme came into being in early October.

While the strength of house price rises in London is becoming an increasing concern and pushing up the overall national increase in house prices, we are currently a long way off from an overall housing market bubble emerging.

Nevertheless, there is a mounting danger that house prices could really take off over the coming months, especially ifalready significantly improving housing market activity and rising buyer interest is lifted appreciably further by the Help to Buy mortgage guarantee scheme

It is therefore of vital importance that policymakers closely monitor the situation and are prepared to act quickly and decisively if signs of the housing market overheating become increasingly widespread and pronounced.

The Bank of England also revealed that lending to non-financial companies rose by £720m in September., following a £3.7m fall in August.

Updated at 10.55am GMT

 

Luke Maynard's insight:

As the article explains, the housing market is booming, with a 5.35 increase over the last month as mortgage approvals increased from 63,000 to 66,000. This increase has raised the pricing of real estate over the UK, increasing the average price. Due to this, some are becoming concerned whether there may be a housing market bubble. A housing market bubble is a rapid increase in real estate prices to levels that are unsustainable. This happens periodically due to high demand for housing which pushes up the pricing of housing as the consumers compete with one another for real estate. Once the prices have reached an unsustainable level they tend to decline after a short while in order to reach a market equilibrium. This is because, in theory, once the price has gotten to be so high the demand for the product will fall and to increase demand again the price must be lowered.

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In pursuit of coffee

In pursuit of coffee | Economics | Scoop.it
COFFEE is just one of Libya’s many charms. The country’s Italian colonial masters bequeathed it a love of the stuff which is matched by the quality of its fare....
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This is an example of excess demand. The lack of supply has caused there to be more demand than supply, this will cause a rise in the price as consumers compete with eachother to consume the scarcity of resources thus pushing the price up until a market equilibrium has been reached.

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Super Bowl XLVIII Pricing: A Lesson In Demand Elasticity

Super Bowl XLVIII Pricing: A Lesson In Demand Elasticity | Economics | Scoop.it
NFL Commissioner Roger Goodell, Giants' co-owners Steve Tisch and John Mara, Jets owner Woody Johnson, David Tyree, former Jets player Emerson Boozer, former Jets player Curtis Maritn, CEO of the NY/NJ Superbowl Host Committee Al Kelly attend the ...
Luke Maynard's insight:

this shows the inelasticity of demand for tickets to the superbowl. The ticket sellers have realised this and as a result pushed their prices up in order to maximise revenue. This is possible because there is such high demand for these tickets as it is such a grand spectacle that even if the price is so high they will still be able to fill out the stadium.

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