Making Investment in Residential Properties - Article Example

The real estate market, specifically for houses, would be dependent on demand and supply based on geographical differences. Since the expectation of speculators on future prices of houses in major cities is high, they would be highly likely to invest. With the belief that housing prices in London remain independent of external factors, endowed foreign investors are highly attracted to the market, particularly the Greater Central London. As it is known, the interest rates in the US declined dramatically between the years 1996 and 2006.

Glaeser et al. (2010) attribute this to hot money and global savings. At the same time, the price index as given by the Federal Housing Finance Agency increased by 53%. According to Taylor (2009), these low real estate interest rates propagated the drastic demand surge for a property because financing for real estate became cheap and also attractive. As delinquency and rates of foreclosure on sub-prime mortgages came down, the price of real estate enhanced real estate market demand (Taylor, 2007).

With low-interest rates, even those with undesirable credit history would cheaply access mortgage loans regardless of their suitability. This occurs in the belief that it could be compensated with the rapidly increasing home prices. There was an irrational enthusiasm that hyped up the housing market and caused the standards for a mortgage to be compromised. Therefore, it is the low-interest rates that led to the US real estate market boom which only lasted until 2007. The sub-prime crisis together with the general economic crisis faced could be largely attributed to the housing bubble.

The anticipation for increasing prices of real estate led to an environment where financial institutions and lenders loosened their standards thus risking default.