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Real Estate Market

According to the article of Martin (2013), housing prices are increasing and the real estate market is rebounding. The increase in housing prices improved the loan situation for many borrowers who purchased luxury objects and owed more than their properties were worth. The percentage of such mortgages declined by 11.7% (from 32.3% to 20.6%). The lenders in major metropolitan areas are better off because housing prices in there areas rise quicker than throughout the country.

Additional opportunities of refinancing large loans also emerge as lenders offer refinancing options for customers with good credit history. Due to these opportunities, lenders can optimize their mortgage payments during the period when interest rates are still low. Therefore, current economic situation offers new solutions for the lenders whose well-being was destroyed by the recession.

From economic perspective, the increase of housing prices and improved mortgage refinancing opportunities point out to the general economic improvement. Housing prices are a leading indicator, so the revival of the housing market predicts a general economic revival and improved employment. Although the Fed’s decision to increase interest rates in the future might hinder the speed of recovery, the economy demonstrates healthy trends.

The revival of housing market might also have a secondary effect on the economy (in particular on spending and on employment). The increase of the demand for housing and the increase in housing prices mean that new houses will be built and the employment will consequently increase. Furthermore, the lenders who can refinance their loans or reduce their payments will have more spare funds, and it is likely that these funds will be spend on consumption rather than saved because of low interest rates. Both trends will increase the aggregate demand and stimulate further economic recovery.