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

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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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