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INTEREST RATES CHANGES AND PROPERTY OWNERSHIP 2

RENJU PETER

6587690

INTEREST RATES CHANGES, AND PROPERTY OWNERSHIP

Introduction

Many issues affect how property will be owned. Some of these issues revolve the

interest charges and how people in the economy use the present economic

conditions to own properties. The information below will describe the problem

statement that will be used concerning interest rates.

Problem Statement

Interest rates are the number one element in business operations that affect how the

business will be operated. The macroeconomic factors have had a hand in

transforming operations within how property will be owned based on the people's

amount of cash. Several factors go hand in hand with the transformation and

changes within the system. Risk should not be underrated in mortgage financing

(Blanchard 2019). A number of costs need to be factored in when taking mortgage

financing. In most circumstances, mortgage financing is a long-term loan expected to

consume much of the interest rate as attributed to forces in inflation, legislation, and

changes in interest rates by fiscal and monetary policy. In the economic recession of

2008, there were several elements concerning the risk identified by the federal

reserves that needed to be addressed (Altavilla, Boucinha & Peydró, 2018).

INTEREST RATES CHANGES AND PROPERTY OWNERSHIP 3

Blanchard (2019) describes issues concerning the cash value that changes daily. In

most occurrences, the value of a property in the present moment is not the same in

the future, and in most occurrences, the value is always high. People will always

want to invest their monies in platforms that add value to their investments

(Dornbusch, 2019). As for property ownership, the high-interest costs are attributed

to inflationary changes and the future value of cash. More importantly, banks and

other lending institutions find it extremely hard to place investments or stocks on

platforms that do not add value to their stocks (Jarociński & Karadi, 2020). When

making mortgage financing, it is prudent that one understands the policies behind

the interest rate changes, which will guide persons wishing to take up credit.

There are several factors to consider before making any investment decision in

property ownership. One has considered the budget constraints that each party has

to bear. One has to look at the income over expenses and the proportion of the

income that can be used to finance the mortgage (Dornbusch, 2019). In most cases,

some people do not make calculated expenditures and forecast growth in

expenditure as there are several unforeseen expenses in the present times. In light

of this, budgeting is an essential tool for property ownership through mortgage as

one has to consider whether they can pay the principal and the interest amounts

(Sovbetov, 2018). Moreover, there are instances where the income may reduce or

increase in the future. This speculation has to be considered as it will go hand in

hand with the interest rate that will be charged and will measure how one can afford

to live within their means while paying for the mortgage (Fornaro & Wolf, 2020).

The agreement payment plan should also be factored in all elements of the budget

as there are some tools and dimensions in which property owners default on their

loans and are forcefully evicted from their households. There are ways and means

INTEREST RATES CHANGES AND PROPERTY OWNERSHIP 4

through which operations are looked into and will affect how one can pay back their

mortgage. When the interest rates are incredibly high, loanees are advised to take

up long-term loans that will enable them to service the loans quickly (Jarociński &

Karadi, 2020). This will also help them make operations smooth and meet

unforeseeable future expenses. When the interest rates are low, it is prudent for

loanees to take up short-term loans that they will quickly pay.

One has also to consider the opportunity cost of the property. In most instances,

some mortgages end up being losses to the homeowners instead of assets. Some

potential investors have taken up loans and invested the loans in assets that

generate income. These assets can finance the debt at the interest rate charged,

and the loanees can also afford to take up mortgages based on the transactions they

have been undertaking from the business. Before undertaking a contract to take up a

loan, the loanee needs to look into the insurance coverage. Some insurance costs

are so high that they result in high loan interest rates. In most instances, bankers

and lending institutions will look into the level of insurance offered for some

properties. If the insurance coverage is too high, the loans will be extremely high

(Altavilla, Boucinha & Peydró, 2018). The systems under which a loan is written and

approved need to be systematic such that all interested parties will have the chance

to attain their objective. Bankers will look to earn from the interest revenue from the

loans. The loanee is seeking to own a property through a mortgage. The government

is seeking to tax all operations from the loanee to the buyer and the seller.

The size of the property will also affect how the loans will be undertaken. Some

properties are in premium soils, and the banks and other financing institutions will

charge higher interest charges on them (Fornaro & Wolf, 2020). On the other hand,

some houses built on undervalued lands may have lower interest rates.

INTEREST RATES CHANGES AND PROPERTY OWNERSHIP 5

One factor pushing people towards owning property is the freedom that comes from

owning property. Many people find it expensive to pay out rent and leases on

property they will not fully own. Land is a minimal resource that, when appropriately

appraised, changes macroeconomic factors such as interest rates. Elements such as

valuation, appreciation, and discounts are brought in, which affect how land is valued

at the moment in comparison to the future value of the land.

Conclusion

Several elements bring about changes in interest rates. In light of these events, it is

prudent for any party wishing to advance or change its operations to look into some

aspects that may bring about change in the interest rates. This will increase their

familiarity with interest rates and how it is a contributing factors to owning property.

INTEREST RATES CHANGES AND PROPERTY OWNERSHIP 6

References

Altavilla, C., Boucinha, M., & Peydró, J. L. (2018). Monetary policy and bank

profitability in a low interest rate environment. Economic Policy, 33(96), 531-

586.

Blanchard, O. (2019). Public debt and low interest rates. American Economic

Review, 109(4), 1197-1229.

Dornbusch, R. (2019). The theory of flexible exchange rate regimes and

macroeconomic policy. In Flexible Exchange Rates and Stabilization

Policy (pp. 123-143). Routledge.

Fornaro, L., & Wolf, M. (2020). Covid-19 coronavirus and macroeconomic policy.

Jarociński, M., & Karadi, P. (2020). Deconstructing monetary policy surprises—the

role of information shocks. American Economic Journal:

Macroeconomics, 12(2), 1-43.

Sovbetov, Y. (2018). Factors influencing cryptocurrency prices: Evidence from

bitcoin, ethereum, dash, litcoin, and monero. Journal of Economics and

Financial Analysis, 2(2), 1-27.

Interest Rates Changes and Property Ownership 1

RENJU PETER

6587690

Changes in Interest Rates and the Influence on Renting and Buying Properties

Sociology Concepts and their Applications

Different sociological concepts deal with the understanding of human behavior

and the whole society. It is applied to understanding social and human cognition. The

unit of sociology analysis ranges from the individual level to a large group of persons.

Sociology is divided into structural functionalism, conflict perspective, and symbolic

interactionism (Johnson, 2022).

According to structural functionalism, society is viewed as a vast network of

interconnected pieces that function harmoniously. This strategy emphasizes the

significance of the social structure or any generally consistent social activity pattern.

Second, this method considers how any structure affects society as a whole and how

any social pattern affects that operation (Dillon, 2020). For example, the changes in

interest rates affect society in terms of buying or renting properties.

Interest Rates Changes and Property Ownership 2

Symbolic interactionism is seen as a micro-level strategy or individual strategy. In

symbolic interaction, society is seen as a drama or ongoing event that is constantly

evolving.

This method places a lot of emphasis on using symbols to communicate and exchange

ideas. According to this theory, society consists solely of the reality that individuals

create for themselves via their interactions with one another (Dillon, 2020). For

example, when you hear the word dog, your brain brings a picture of a four-legged

canine.

Last but not least, the conflict method is regarded as a macro-level strategy that

emphasizes inequity. In society, resources are distributed inequitably so that a minority

benefits at the expense of the majority. Conflict arises in a community due to the

unequal distribution of wanted resources. Those with the means create systems and

procedures to preserve these resources. This perspective sees society as being

constantly at war because those who lack resources are constantly coming up with new

ways to acquire them (Dillon, 2020). For example, employer always wish to pays as little

as possible for labor, while the employe wish to maximize their salaries.

Changes in Interest Rates

Lending money comes with a fees called an interest rate. Alternately, it might be

the payment for the risks and services involved in lending money. The situations

stimulate borrowing, lending, and spending, which keeps the economy running.

However, market interest rates always fluctuate, and various loan kinds offers different

Interest Rates Changes and Property Ownership 3 interest rates. Some of the factors in society that cause change in interest rate are the

lenders and borrowers, the type of loans, etc.

The Level of Risk

The possibility of the debt being repaid is referred to as the risk. Higher interest

levels result from a larger likelihood that the loan won't be repaid. The interest rate will

likely be lower if the loan is "secured," that is, if there is some kind of collateral that the

lender will be able to seize if the loan is not repaid, for example, a car, This is so

because the collateral covers the risk factor.

Secondly, there may be little to no loss on principle loaned out for some loans

that may be easily turned back into cash. Generally speaking, these loans have lower

interest rates. Since the government is the borrower, there is naturally less risk

associated with government-issued debt securities. The rate on Treasury securities is

often low due to this, plus the fact that the interest is tax-free.

Risk is affected by time as well. Long-term loans are more likely to go unpaid

since the adversity that causes default can develop over a longer period. Additionally,

lengthy Finally, a loan's face value is much more susceptible to inflationary impacts than

a short-term loan is. Therefore, the lender should be compensated with greater interest

the lengthy the borrower has to repay the loan.

The Level of Demand and Supply

The supply and demand of credit affect interest rates level; higher or lower

demands for credit will result in higher or lower interest rate, respectively. In contrast,

the highest credit availability will result in lower interest rate, while a lowest credit

Interest Rates Changes and Property Ownership 4 availability will result in higher rate. Lenders' decisions to postpone loan repayment

result in a reduced amount of credit accessible to the economy.

The Government

The interest rates that banks set on the money they lend is influenced by the

federal fund rates or the price that institutions charges one another for extremely short-

term loans. Later, other short-term loan rates will gradually be influenced by that rate

(Kuang et al., 2019).

When the government purchase additional securities, bank receives an influx of money

that exceeds what they can use for lending, which lower interest rate. When the

government sell securities, bank funds are diverted for the transactions, leaving them

with less money available for lending, which forces an increase in interest rate (Jareno

et al., 2019).

Inflation

Interest rate levels will also be impacted by inflation. Interest rates are more likely

to increase the highest the inflation rate. It happens because lenders will demand higher

interest rates to make up for the declining purchase value of the money they will

eventually be paid (Jareno et al., 2019).

Effect of Interest Rates on the Ability to Buy or Rent Property

Capital Flow

Interest rates have a big impact on mortgage rates and funding expenses, which

impacts costs at the individual property level and, consequently, values.

Interest Rates Changes and Property Ownership 5 The largest influence on necessary rates of return and investment prices, however,

comes from the supply and demand for capital as well as competing investments.

The Federal Reserve Committee's policies have directly impacted the value of all

investments. It has shifted its emphasis away from monetary policy and toward

regulating interest rate to boost the economy or ward off inflation (Sommer & Sullivan,

2018).

Interbank exchange rates are falling, which lowers the cost of funds and allows

more money to enter the system. The availability of funds, on the other hand, declines

as rates increase. Regarding real estates, the variations in interbank lending rates may

increase or decrease the available cash for investments. Demand and supply, or the

quantity of money available for real estate purchase and developments, are influenced

by the amount of capital and value (Sommer & Sullivan, 2018).

Valuation Fundamentals

The supply and demands for home, as well as the expense of building new

homes, all have an impact on real estate values. However, there’s more to evaluate

than that, particularly while considering how the government controls interest rates,

capital flows, and financing costs.

Discount Rates

Discount rates will alter as change in the interest rates that makes them up,

whereas risk premiums vary as a function of supply and demand and other market risk

factors. Real estate values decrease when the needed returns on alternatives or rival

Interest Rates Changes and Property Ownership 6 investments grow; in contrast, prices rise when interest rates decrease (Forrest, Murie &

Williams, 2021).

References

Dillon, M. (2020). Introduction to sociological theory: Theorists, concepts, and their applicability to

the twenty-first century. John Wiley & Sons.

Forrest, R., Murie, A., & Williams, P. (2021). Home ownership: Differentiation and fragmentation.

Routledge.

Johnson, D. P. (2022). Contemporary sociological theory: An integrated multi-level approach.

Springer Science & Business Media.

Jareño, Francisco, Marta Tolentino, María D. González, and Alejandro Oliver. "Impact of changes in the

level, slope and curvature of interest rates on U.S. sector returns: an asymmetric nonlinear

cointegration approach." Economic Research-Ekonomska Istraživanja 32, no. 1 (2019), 1275-1297.

doi:10.1080/1331677x.2019.1632726.

Kuang, W.,

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