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Thread: What is the effect of the increase in existing US home sales?

  1. #11 Collapse Post
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    Quote Originally Posted by Oriana     
    You are really spot on. I was looking at 30 year mortgages and realized that in the initial few years, whatever our repayments are, almost 70-80% goes just towards the interest because its compounded. So in other words, the first 5-6 years is just like paying interest and only a small amount of principal. Its after this time is when the principal starts getting paid. One such crisis like the 2008 can cause havoc on the housing market where people are deeply in debts.
    Yeah, that's why if you read any Financial Book or listen to lectures on this topic, they always suggest to take a lower time frame loan like for 15 years or 20 years. That's because the compounding effect isn't as bad in 15-20 years home loan than it is for 30 years home loan and its not as stressful as the longer duration one. But I think people in USA these days just are buying houses without much consideration of these factors. That's why the housing sales are up.

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    I think the effect of this is evident. I think its because they spend more money and don't have much left after paying their mortgage payments, the overall consumer price index goes down. This in turn, reduces the inflation and interest rates. I think the overall impact is such that the USD drops down as is evident since the past 3 to 5 months. I think increase in existing home sales is an evidence of that.

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    As the number of people buying the houses in USA increases to record numbers, I think the House Prices will go up. That's what the effect will be of such a situation. This is because when more people buy, the demand for existing homes go up because the supply is kind of constant. Sellers will charge higher selling prices for their properties and the overall property market will have a bullish trend.

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    Quote Originally Posted by Oriana     
    As the number of people buying the houses in USA increases to record numbers, I think the House Prices will go up. That's what the effect will be of such a situation. This is because when more people buy, the demand for existing homes go up because the supply is kind of constant. Sellers will charge higher selling prices for their properties and the overall property market will have a bullish trend.
    Great explanation. I will add further to your comment that in such a bullish market, more and more jobs are created further because when developers see such a trend, they invest more and hire builders to create more properties. This in turn creates new jobs for the local people in that area which helps reduce the unemployment rate and increase consumer purchasing index and consumer confidence.

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    Quote Originally Posted by Earie     
    Great explanation. I will add further to your comment that in such a bullish market, more and more jobs are created further because when developers see such a trend, they invest more and hire builders to create more properties. This in turn creates new jobs for the local people in that area which helps reduce the unemployment rate and increase consumer purchasing index and consumer confidence.
    Yeah you are right Earie. Its an overall positive thing for the market as every one thinks it will continue going up. In general, that's what economies are designed to do. It also creates jobs but sometimes, its based on specific areas where the jobs are created. For example in UAE, the main boom was in Dubai as compared to all other states in the federation. Developers focus on areas where there is higher demand and more growth potential.

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    I think increasing home sales will push the market prices up further. This upward momentum will continue well into 2021 and beyond as the confidence in US economy is restored after the COVID-19 pandemic. Since USA has started vaccinating its population, we might see a strong rise in consumer confidence with more and more people buying houses and driving the prices further upward. This has the potential to increase CPI/Inflation rates and currency value.

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    I think this is an old thread which was started when COVID-19 was just taking over most of the Western Countries. At that time, US Home sales went up which meant more and more people were buying new homes as the interest rates were lower and people wanted to get the best out of the house prices. Since then, I think a lot has changed as USD went down over the last 5 to 6 months and I think the home sales would have stabilized by now.

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    Quote Originally Posted by Dinara     
    I think this is an old thread which was started when COVID-19 was just taking over most of the Western Countries. At that time, US Home sales went up which meant more and more people were buying new homes as the interest rates were lower and people wanted to get the best out of the house prices. Since then, I think a lot has changed as USD went down over the last 5 to 6 months and I think the home sales would have stabilized by now.
    You are correct. Things have changed quite a lot since the start of this pandemic. Initial increase in US Home sales was driven by a lot of factors like the past trend, disposable income people had, lower interest rates and not to forget, not that many people lost their jobs and there was huge influx of government support and funding to stabilize the economy. Now that effect is slowly fading away and things are getting back to how they were back then.

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    This is just another type of fundamental factor which affects the price of currencies. Home sales predict how the economy is doing and do people i.e. consumers have enough confidence to continuously buy and sell houses. High level of home sales indicate that the market is liquid and in an upward trajectory which shows growth as house prices go up as well. Overall, an increase in house sales indicate a strong growth in economy.

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    Quote Originally Posted by Earie     
    This is just another type of fundamental factor which affects the price of currencies. Home sales predict how the economy is doing and do people i.e. consumers have enough confidence to continuously buy and sell houses. High level of home sales indicate that the market is liquid and in an upward trajectory which shows growth as house prices go up as well. Overall, an increase in house sales indicate a strong growth in economy.
    I would like add some important points further to your post. I think the number of home sales also show that how is the overall economy is doing. If hte home sales are higher, it means that more houses are being constructed which means a higher demand for all the material used in the construction industry. These include steel, gyprock, manpower required etc. A high demand for skilled workers has the potential to lower the unemployment rate and show strong growth within the economy. So its good for the currency.

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