Question

Real estate equity and debt markets are closely intertwined: Most new properties are financed in part with mortgage-secured notes, and there is an active secondary market for both mortgage notes and real estate equity interests. Under what circumstances would prices in these markets most likely move in opposite directions?

Answer 1

Real estate equity Markets and debt markets are closely intertwined as most new properties are financed with Mortgage security note and prices of these markets are almost moving similar with each other but there are certain conditions when the real estate equity Markets and real estate and debt markets are moving in opposite direction and those situations are as following-

A. When there would be a cut in the interest rate by Federal Reserve,it will mean that the interest rate on the debt securities will be falling but it will be positive for the real estate equity markets, as the prices will be rising due to more liquidity.

B. when there would be an equity market crash, it would be leading to fall in the price of real estate equity markets but the debt markets will be moving up simultaneously because of the alternate markets and flow of money to safety.

C. When there will be a highly Secured environment then there would be low yield on debt securities due to higher safety but it will be leading to higher return on real estate equity markets due to better stable government.

D. At the time of the economic uncertainty, there is also higher yield on the real estate debt market but lower yield on the real estate equity market because the equity market will be prone to uncertainty.

E. At inflationary situations, there will be high demand for real estate the real estate equity market will be providing with higher rate of return than real estate debt markets.