Financial and Housing Markets Flashcards
7 cards from real CMPS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial and Housing Markets flashcards as text
What happens to the price of an existing mortgage-backed security when market interest rates rise?
Answer: Its price falls because its fixed yield becomes less attractive
Like all fixed-income securities, MBS prices move inversely to interest rates — rising rates make existing fixed-payment MBS less attractive, pushing prices down.
What is 'prepayment risk' in the context of mortgage-backed securities?
Answer: The risk that borrowers will pay off loans early, reducing expected interest income
Prepayment risk is the uncertainty that borrowers will refinance or pay off their mortgages early, cutting off the interest income that MBS investors expected.
Which of the following best describes a 'buyer's market' in residential real estate?
Answer: High inventory relative to buyer demand, giving buyers negotiating power
A buyer's market occurs when supply of homes exceeds demand, allowing buyers to negotiate lower prices, request concessions, and take more time to decide.
The 'absorption rate' in a housing market refers to:
Answer: The rate at which available homes are sold over a given period
Absorption rate measures how quickly existing inventory is sold, typically expressed as months of supply; lower rates indicate stronger demand relative to supply.
What is the role of the Government National Mortgage Association (Ginnie Mae) compared to Fannie Mae?
Answer: Ginnie Mae guarantees MBS backed by government-insured loans (FHA/VA); Fannie Mae deals with conventional loans
Ginnie Mae is a true government agency that guarantees timely payment on MBS backed by FHA, VA, and USDA loans, while Fannie Mae works with conventional conforming loans.
How does the concept of 'housing affordability' typically combine multiple economic factors?
Answer: It factors in median home prices, median income, and prevailing mortgage rates
Affordability indices such as the NAR Housing Affordability Index incorporate median home prices, median family income, and current mortgage rates to assess purchasing power.
What effect does a surplus of foreclosed properties ('shadow inventory') typically have on a local housing market?
Answer: It tends to depress property values and slow price recovery
A large shadow inventory of distressed properties creates downward price pressure because it represents latent supply that will enter the market, competing with traditional sellers.