The Mortgage Market and Home Construction

Abstract

The purpose of this paper is to study the mortgage market and its effect on the home construction industry. As such, it is necessary to consider both the nature of the mortgage market and the nature of the home building industry. Throughout this paper it will become evident that the rate of interest is of great importance. A change in the mortgage interest rate has proven historically to produce an immediate effect on the construction industry. For instance, a rise in the interest rate of one percent is likely to reduce the number of people who are willing to, or able to, undertake the higher mortgage costs. Therefore, as fewer persons acquire new-mortgages, the housing industry is bound to suffer, because new home owners and builders are almost completely dependent on the mortgage market for financing.

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