One of the main pillars of the world economy is foreign trade. The US balance of trade is one of the important deciding factors that can positively or adversely impact the global economy. The deficit or surplus trade balance figures have the potential to create a boom or bust the economy. The real estate market and the rate of interest are very much affected by these numbers.
A negative trade balance can lead to financial instability and the recover of our nation’s economy from such a precarious situation could even require the government to increase taxes to stabilize it.
Here are the top five ways by which debt in the federal economy will impact the mortgage and real estate business:
1.) The rate of interest will instantaneously increase if the federal government faces such a stalemate situation. This will discourage most people for investing any further as their income will remain stagnant but the prices of the products will increase a lot.
2.) Federal debt will cause an immediate rise in the prices of the real estate. This is another simple way that is taken up by the government to stabilize the nation’s economy because only a few persons will have the purchasing power to invest in such luxury item when the economy is poor. The government will likely make an effort to tax them in an effort to help in stabilize the economy of the country.
3.) A Federal deficite would result in a stark drop in the value of securities. As a result the stock market would demand a higher rate of interest on the new loans that have been taken up to compensate for the risk. This may seriously hamper the interest of the borrowers as they might not have the power to pay so much interest.
4.) In the long run the value of dollar and stocks will also decrease and this will further aggravate the already strenuous situation as it will seriously affect the purchasing power of the common people.
5.) Moreover, the lenders, like the financial institutions and related authorities, would also demand more collateral from the prospective borrowers as they would not want to take any chances in this grave economic circumstances.
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