Humber/Ontario Real Estate Course 2 Exam Practice

How does an increase in personal debt affect the residential property market demand?

1. It generally leads to a decrease in demand since individuals have less financial freedom to invest in properties.

2. It increases the demand as people look for more stable investment options.

3. It has no effect on the property market demand.

4. It tends to increase the demand for high-end residential properties.

5. It results in a significant rise in mortgage defaults.

6. It pushes individuals towards renting rather than buying homes.

The correct answer is: It generally leads to a decrease in demand since individuals have less financial freedom to invest in properties.

An increase in personal debt generally leads to a decrease in demand in the residential property market because individuals have less financial freedom to invest in properties. When people have high levels of personal debt, they are less likely to take on additional debt in the form of a mortgage to purchase a property. This reduced capacity for borrowing limits their ability to participate in the real estate market, ultimately leading to a decrease in demand for residential properties. As a result, option A is the correct answer. Options B, D, and F are incorrect because they suggest an increase in demand or a shift towards specific types of properties or investment options as a result of personal debt, which is not typically the case. Option C is also incorrect as personal debt can have a significant impact on the property market demand, as explained above. Option E, stating that an increase in personal debt results in a significant rise in mortgage defaults, is not directly related to how personal debt affects property market demand and is therefore not the most appropriate answer in this context.