Homework Help is Here – Start Your Trial Now!
Business
Economics
Problem 1: The following two figures illustrate historical home price trend and interest rate for the 30-years fixed rate mortgage in the United States. Based on the information, please answer the following questions if today were in 2013. Assuming that history will repeat itself, what do you think of the U.S. housing market for the next 10 years? How about mortgage rate for the next 10 years?   Based on your prediction, answer the two questions below: a)If you have money, should you invest in the housing market? b)If your answer in a) is “Yes”, and one lender allows you to borrow money, should you borrow money to buy the property? Why?

Problem 1: The following two figures illustrate historical home price trend and interest rate for the 30-years fixed rate mortgage in the United States. Based on the information, please answer the following questions if today were in 2013. Assuming that history will repeat itself, what do you think of the U.S. housing market for the next 10 years? How about mortgage rate for the next 10 years?   Based on your prediction, answer the two questions below: a)If you have money, should you invest in the housing market? b)If your answer in a) is “Yes”, and one lender allows you to borrow money, should you borrow money to buy the property? Why?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

Problem 1: The following two figures illustrate historical home price trend and interest rate for the 30-years fixed rate mortgage in the United States. Based on the information, please answer the following questions if today were in 2013.

  1. Assuming that history will repeat itself, what do you think of the U.S. housing market for the next 10 years? How about mortgage rate for the next 10 years?
  •  
  1. Based on your prediction, answer the two questions below:

a)If you have money, should you invest in the housing market?

b)If your answer in a) is “Yes”, and one lender allows you to borrow money, should you borrow money to buy the property? Why?

THE HISTORICAL PERSPECTIVE: 37 years, 3 cycles 16% 12% 8% (1976Q1-2013Q1) 4% Nominal year-over-year growth rate +12% Real year-over-year growth rate Real cumulative changes shown in boxes 0% -4% -12% -8% +13 -12% Real Growth =HPI Growth - CPI Growth Where: -16% -12% HPI Growth = In(HPI(t)/HPI(t-4)) CPI Growth = In(CPI(t)/CPI(t-4)) 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 +62% 1981Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 -37% 1990Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2004Q1 2005Q1 2006Q1 2007Q1 2003Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 1982Q1 1989Q1 1991Q1
Transcribed Image Text:THE HISTORICAL PERSPECTIVE: 37 years, 3 cycles 16% 12% 8% (1976Q1-2013Q1) 4% Nominal year-over-year growth rate +12% Real year-over-year growth rate Real cumulative changes shown in boxes 0% -4% -12% -8% +13 -12% Real Growth =HPI Growth - CPI Growth Where: -16% -12% HPI Growth = In(HPI(t)/HPI(t-4)) CPI Growth = In(CPI(t)/CPI(t-4)) 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 +62% 1981Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 -37% 1990Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2004Q1 2005Q1 2006Q1 2007Q1 2003Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 1982Q1 1989Q1 1991Q1
30-year Fixed Morgate Rate: 1971-2013 18% 16% 14% 12% Historical average: 8.6% 10% 8% 6% 4% 2% 0% 2013Q3 2012Q3 2011Q3 2010Q3 2009Q3 2008Q3 2007Q3 2006Q3 2005Q3 2004Q3 2003Q3 2002Q3 2001Q3 2000Q3 1999Q3 1998Q3 1997Q3 1996Q3 1995Q3 1994Q3 1993Q3 1992Q3 1991Q3 1990Q3 1989Q3 1988Q3 1987Q3 1986Q3 1985Q3 1984Q3 1983Q3 1982Q3 1981Q3 1980Q3 1979Q3 1978Q3 1977Q3 1976Q3 1975Q3 1974Q3 1973Q3 1972Q3 1971Q3
Transcribed Image Text:30-year Fixed Morgate Rate: 1971-2013 18% 16% 14% 12% Historical average: 8.6% 10% 8% 6% 4% 2% 0% 2013Q3 2012Q3 2011Q3 2010Q3 2009Q3 2008Q3 2007Q3 2006Q3 2005Q3 2004Q3 2003Q3 2002Q3 2001Q3 2000Q3 1999Q3 1998Q3 1997Q3 1996Q3 1995Q3 1994Q3 1993Q3 1992Q3 1991Q3 1990Q3 1989Q3 1988Q3 1987Q3 1986Q3 1985Q3 1984Q3 1983Q3 1982Q3 1981Q3 1980Q3 1979Q3 1978Q3 1977Q3 1976Q3 1975Q3 1974Q3 1973Q3 1972Q3 1971Q3
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Mortgage
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS