what happened in long run & Short run when a fall in real estate prices?

Question

Assume the econoly is in equilibiruim. Using the Aggregate supply and demand curve illustrate the short run and long run effects of a fall in real estate prices in the capital cities (hint: think of the effect upon one's wealth level).

Answer 1

Real estate values have in inverse relationship with interest rates & the stock market.

So when real estate prices are high, interest rates are low & the stock markets low.

As real estate prices fall, interest rates rise, and the stock market will rise.

When real estate prices are low, interst rates are high, and the stock market is booming (go bulls ... run it up).

So, I guess it's a question of do you hold more assets in real estate or if you hold more assests in corporations.

Answer 2

The two do not move together, and in fact often move in opposite directions. This is because long-term yields are priced off long-term growth and inflation expectations. The Fed is only cutting short term rates. Banks decide what they will lend money for over a long period of time. Most home loans have the rates determined by the 10 year Bond rates. It is currently about 3.84%. I recommend getting your loans now, rates will probably only go up from here!