Which of the following tends to lead to an increase in house prices?
A) An increase in interest rates
B) Regulators specifying a maximum level for the loan-to-value ratio on mortgages
C) Banks reducing the minimum FICO score that borrowers are required to have
D) An increase in foreclosures

Question

Quizplus · Accepted Answer

An increase in interest rates tends to lower house prices because buyers have higher financing costs.Limiting the loan-to-value ratio means that some potential buyers cannot get the mortgages they require and there is less demand for houses with the result that prices tend to decline.An increase in foreclosures increases supply and this also lowers prices.However,if banks relax their lending standards (e.g.by reducing the minimum FICO scores they require)demand should increase because more people can get mortgages.As a result prices will increase.

Which of the Following Tends to Lead to an Increase