Understanding Financial Risk when Purchasing a Home

Larry O. Doss Monday, January 25, 2010

The average sales price of homes in Yuba City CA for the month of Sep 09 to the month of Nov 09 was $165,000. This shows an increase of 3.1%, or $5,000, from the previous quarter. There was a decline of 6.8% compared to the year 2008. Sales prices have depreciated at a drastic rate of 38.2% during last five years in Yuba City.

It was found that the average list price for a Yuba City home on sale was $266,086, week ending Jan 13th; this is clearly a decline of 1.2%, or $3,107, compared to the decline of 4.7% during the previous week. The price per square foot on an average in Yuba City CA was $98; there is a decrease in this price as well in comparison to the same period in the previous year.

In Yuba City there are over four million homes available for sale which is enough to meet the growing demand.

If you look at the business of purchasing or financing a home it has been a rewarding business opportunity but today it is seen as a possible risk. During recent years, it became fashionable to incur additional risk by increasing the value of a property by a refinance or home equity loan. These refinances loan options enabled consumers to borrow against the value of their property.

Refinance loans can then be utilized for nearly any purpose. If we look at the risks of increasing the value of properties that are on sale, the purchase of these assets is with the aim of using these assets to earn additional income. Financial institutions spend a lot of time, effort and resources in managing assets liabilities. Managing these risks that are associated with borrowing and then investing this money is termed as Asset-liability management. Profits are generated when money is borrowed at a certain rate and term to maturity and investing that same money in financial instruments which have similar maturity term, lower risk and slightly higher returns as compared to the rate at which the money was first borrowed.

Others may take on more risk and make higher profits by investing the borrowed money in financial instruments with longer maturity terms than of their own borrowings, considerably higher risks and higher expected returns. The more there is difference between financial institutions’ characteristics as compared to their borrowings, the more risk they undertake through financial leverage.

The risks of this arrangement of financial leverage minimize if the duration of borrowings match with the duration for which it has done its investments. For example, when planning to purchase a home, a duration match would be to borrow money for a two year loan term and invest this borrowed amount in a two-year bond - the loan and the bond will have same cash flows and same durations. An example of duration mismatch will be if you borrow money for two years and invest that money in a 10-year bond – in this case the loan will need to be renewed every 2 years so that it can continue to finance the 10-year bond, or this bond will have to be sold after two years. There is no guarantee that the loan can be renewed at the original rate of interest at the end of the two-year periods, nor is there any guarantee that the bond will fetch its original price.

For additional resources and information please visit the following sites.

Resource Links:
http://www.gmacrealestate.com
Bill Fields All Star Coaching Program: http://www.AllStarCoaching.net
GreatWest GMAC Search all MLS Listings: http://www.LocalHomeLink.com
GreatWest GMAC Consumer Buyer/Seller Blog: http://www.GreatWestBlog.com
T. Sami Siddiqui (Broker/ Owner) Buzz About Sacramento Blog: http://www.samisiddiquiblog.com
Brodie Stephens (Executive Vice President) One Stop Blog: http://www.brodiestephensblog.com
GreatWest Podcasts- Weekly Updates on new REO, Short Sale, Bank Owned Foreclosure Listings: http://www.HouseTalkOnline.com
GreatWest Videos: http://www.youtube.com/brodiestephens
Facebook Brodie Stephens Profile Page: http://www.facebook.com/brodiestephens
Facebook GreatWest Profile Page: http://www.facebook.com/searchmlshomesforsale
MySpace Brodie Stephens Blog: http://www.myspace.com/brodiestephens
MySpace GreatWest Blog: http://www.myspace.com/greatwest
Picasa Web Album: http://picasaweb.google.com/brodiestephens
GreatWest Real Estate Careers- GMAC is looking for Professional Realtors to Join Us: http://www.CareersWithUs.com
Global Employee Relocation: http://www.employeerelocation.blogspot.com
Apply for a Loan: http://www.choice1funding.com
ActiveRain Blog Brodie http://activerain.com/blogs/brodiestephens
ActiveRain Blog Companyhttp://activerain.com/blogs/greatwestgmac
Sacbeehttp://www.sacbee.com
Company WordPress Sitehttp://www.thehomeholders.com
Real Livinghttp://www.realliving.com




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Based on information from the Humboldt Association of REALTORS®, as of 01/21/2022. All data, including all measurements and calculations of area, is obtained from various sources and has not been, and will not be verified by broker or MLS for accuracy. All information should be independently reviewed and verified of accuracy. Properties may or may not be listed by the office/agent presenting the information. Copyright ©2020 Humboldt Association of Realtors®. All rights reserved.