Problem 1: The following two figures illustrate historical home price trend and interest rate for the 30-years fixed rate mortgage in the United States. Based on the information, please answer the...

Problem 1: The following two figures illustrate historical home price trend and interest rate for the 30-years fixed rate mortgage in the United States. Based on the information, please answer the following questions


if today were in 2013

.

1. 
   
   Assuming that history will repeat itself, what do you think of the U.S. housing market for the next 10 years? How about mortgage rate for the next 10 years?
   

1. 
   
   Based on your prediction, answer the two questions below:
   

a)If you have money, should you invest in the housing market?

b)If your answer in a) is “Yes”, and one lender allows you to borrow money, should you borrow money to buy the property? Why?

Extracted text: THE HISTORICAL PERSPECTIVE: 37 years, 3 cycles 16% 12% 8% (1976Q1-2013Q1) 4% Nominal year-over-year growth rate +12% Real year-over-year growth rate Real cumulative changes shown in boxes 0% -4% -12% -8% +13 -12% Real Growth =HPI Growth - CPI Growth Where: -16% -12% HPI Growth = In(HPI(t)/HPI(t-4)) CPI Growth = In(CPI(t)/CPI(t-4)) 1976Q1 1977Q1 1978Q1 1979Q1 1980Q1 +62% 1981Q1 1983Q1 1984Q1 1985Q1 1986Q1 1987Q1 1988Q1 -37% 1990Q1 1992Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2004Q1 2005Q1 2006Q1 2007Q1 2003Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 1982Q1 1989Q1 1991Q1


Extracted text: 30-year Fixed Morgate Rate: 1971-2013 18% 16% 14% 12% Historical average: 8.6% 10% 8% 6% 4% 2% 0% 2013Q3 2012Q3 2011Q3 2010Q3 2009Q3 2008Q3 2007Q3 2006Q3 2005Q3 2004Q3 2003Q3 2002Q3 2001Q3 2000Q3 1999Q3 1998Q3 1997Q3 1996Q3 1995Q3 1994Q3 1993Q3 1992Q3 1991Q3 1990Q3 1989Q3 1988Q3 1987Q3 1986Q3 1985Q3 1984Q3 1983Q3 1982Q3 1981Q3 1980Q3 1979Q3 1978Q3 1977Q3 1976Q3 1975Q3 1974Q3 1973Q3 1972Q3 1971Q3