Real Estate Finance

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RealEstate Finance

Realestate is among the key sectors of the economy that cannot be ignoredin any country. There are two major factors that make the real estatefinance important to the U.S. and its economy. First, assets that arefunded by this finance form a significant part of the fixed capitalstock and the national wealth (Lacoviello 1). Therefore, the realestate financing has a direct and significant impact on the economicgrowth of the country and individual citizens. Secondly, the realestate represents a large proportion of the citizens’ andhouseholds’ consumption. The government understands that itsability to finance such a significant component of the country’seconomy will have a direct impact on overall levels of growth andinvestment.

Howdoes housing finance in the US affect the economies of othercountries? Positives? Negatives?

Inmost cases, the housing finance in the U.S. affects economies ofother countries negatively. The aspect of negative impact isattributed to the fact that the U.S. housing finance has an indirectrelationship with the foreign economies. The aim of housing financeis to help more Americans (including the middle-income households)afford houses, which limits the positive impact to the U.S. borders.However, any negative impact on the U.S. housing finance spills overto other countries via the financial sector. The negative effect onforeign economies was confirmed by the downtown experienced in 2008in the U.S. housing sector resulted in a decline in the stock holdsin other countries by 40 % (ESL Gold 1).

Roleof HUD in the Growth of the Real Estate Economy

TheDepartment of Housing and Urban Development (HUD) has a lot ofnegative impacts on the growth of the U.S. real estate economy. Forexample, its contribution to the policy development has resulted inthe creation of a platform that facilitates equality in the realestate sector. From its mission, HUD states that it was founded tohelp all Americans access the real estate market (Department ofHousing and Urban Development 1). This mission is accomplishedthrough the establishment of a healthy mortgage market and affordablehousing. In addition, HUD injects a large amount of money into thereal estate sector every year. For example, it spent about $ 42billion in 2012 to facilitate the recovery of the sector (HUD 1).However, HUD’s decision has resulted in the negative effects in thepast. For example, it pressured lenders to advance mortgages prior tothe 2008 financial crisis to citizens who did not quality (HUD 1). Although HUD had a positive intention of helping the poor Americansacquire houses, most of the unqualified borrowers were unable torepay their loans, which resulted in the crisis and a negative effecton the real estate sector.

Effectof the U.S. Debt on Mortgage Policy

Anincrease in the government’s debt is associated with a rise in thecost of nearly all commodities, including the houses (Amdeo 1). Themortgage policy is likely to be affected in a negative way becauselenders would prefer to lend to the government to mortgage holders,with the objective of reducing the level of risk. The overall valueof houses will drop in the long run. Consequently, the real estatesector will become unattractive to foreign investors who buy themortgage as part of a portfolio of the national debt.

Conclusion

Thereal estate sector is a significant component of the economy of theU.S., given its contribution to the GDP and household income. TheU.S. housing finance policy and trends affect the domestic as well asthe international markets. Although HUD gives the middle classAmericans an opportunity to own property in the real estate sector,its decision to extend mortgage to customers who cannot pay for themsubjects the financial and the entire economy to the risk of crisis.

References

Amdeo,K. Who owns the U.S. national debt? TheBalance.31 August. 2016. Web. 1 September 2016.

Departmentof Housing and Urban Development. The Federal Budget: Fiscal Year2012. HUD.2012. Web. 1 September 2016.

ESLGold. Financial meltdown. ESLGold.2016. Web. 6 September 2016.

Lacoviello,M. Housing wealth and consumption. TheFederal Reserve Board.20 September. 2011. Web. 1 September 2016.