Unit 15: The Real Estate Market and Analysis

Economic characteristics of real estate include

(1) government controls influencing the market through zoning, building codes, and taxes; (2) the market's slow response to change in supply and demand; (3) area preference (situs) influencing the price buyers are willing to pay; and (4) supply and demand interacting to affect property prices.

Physical characteristics of the real estate market are that

(1) real estate is immobile; (2) land is indestructible (durable); and (3) real estate is unique (nonhomogeneous).

Example: Assume that 200 apartments are rented in a 250-unit apartment building. What is the building's occupancy rate?

200 rented units ÷ 250 total units = .80 or 80% occupancy rate

What is the building's vacancy rate if 225 units are rented in a 300-unit apartment building?

300 total units - 225 rented units = 75 vacant units 75 vacant units ÷ 300 total units = .25 or 25% vacancy rate

Situs

Relationships and influences created by location of a property that affect value (e.g., accessibility, personal preference).

What is a building's vacancy rate if 621 units are rented in a 690-unit building? A) 25% B) 90% C) 10% D) 75%

The answer is 10%. 690 total units - 621 rented units = 69 vacant units. 69 units ÷ 690 total units = .10 or 10% vacancy rate.

There are 315 apartments rented in a 350-unit apartment building. What is the building's occupancy rate? A) 80% B) 75% C) 95% D) 90%

The answer is 90%. 315 rented units ÷ 350 total units = .90 or 90% occupancy rate.

When the equilibrium of the real estate market is upset by excess demand, A) a buyer's market exists. B) builder activity decreases in response to the need. C) a seller's market exists. D) demand decreases.

The answer is a seller's market exists. When the supply and demand equilibrium is upset by excess demand, a seller's market exists.

Which statement is FALSE regarding the relationship between price and demand? A) Decrease in price causes an increase in demand. B) An increase in price causes an increase in demand. C) An increase in price causes a decrease in demand. D) There is an inverse relationship between price and demand.

The answer is an increase in price causes an increase in demand. An increase in price causes a decrease (not an increase) in demand.

When fewer buyers are competing for a large supply of homes what type of market results? A) Buyer's market B) Highest and best use is in transition C) Seller's market D) Vacancy rates are depleted

The answer is buyer's market. When the supply and demand equilibrium is upset by excess supply, a buyer's market develops.

The barometer of the real estate market is considered to be the A) cost and availability of credit. B) change in consumer tastes. C) change in consumer income. D) number of housing starts.

The answer is cost and availability of credit. The barometer of the real estate market is considered to be the cost and availability of credit.

The land use that generates the MOST income to the land and improvements is called A) highest and best use. B) situs. C) durability of land. D) economic use.

The answer is highest and best use. The highest and best use of land is the use that generates the most return (income) to the land and improvements compared with alternative uses.

One person or a group of persons occupying a separate housing space is technically defined as a A) unit. B) multiple ownership unit. C) household. D) family.

The answer is household. A household, as defined by the U.S. Census Bureau, is any person or group of persons occupying a separate housing space.

What type of relationship is said to exist between price and supply? A) All of these B) Inverse C) Positive D) Unrelated

The answer is inverse. Price and supply are inversely (oppositely) related. When supply goes down, prices go up. When supply goes up, prices go down.

Which characteristic does NOT describe the real estate market? A) Land is homogeneous. B) Land is indestructible. C) The market is slow to respond to changes in supply and demand. D) The government uses indirect controls.

The answer is land is homogeneous. Real estate is heterogeneous; no two tracts of land are identical.

Which characteristic is NOT a physical characteristic of real estate? A) Real estate is nonhomogeneous. B) Land is immobile. C) Land is durable. D) The market is slow to respond to change in supply and demand.

The answer is the market is slow to respond to change in supply and demand. The market is slow to respond to change in supply and demand is an economic characteristic of real estate.

Which data is the LEAST helpful as a real estate market indicator? A) Number of houses sold and price levels B) Zoning regulations C) Number of building permits issued D) Vacancy rate of rental units

The answer is zoning regulations. Good market indicators include data regarding price levels and building permits issued, vacancy rates, and sales volume.

Seller's Market

The demand for available properties exceeds the supply.

Vacancy Rate

The percentage of rental units that are not occupied.

Supply

The quantity of goods or services offered for sale to consumers.

Demand

The quantity of goods or services wanted by consumers.

Market indicators include price levels, vacancy rates, and sales volume. True False

The statement is true. Price levels are indicators of new housing supply and demand for certain price ranges, vacancy rates indicate the need and demand for housing in a certain market, and sales volume can be used in estimating the direction and rate of growth.

Nonhomogeneous is a term that refers to the uniqueness of land. True False

The statement is true. Real estate is unique. No two tracts of land are identical. The uniqueness of land is called heterogeneity (nonhomogeneous).

Consumer taste or preferences is a variable that influences demand. True False

The statement is true. The variables that influence demand include the price of real estate, population numbers and household composition, income of consumers, availability of mortgage credit, and consumer taste or preferences.

The availability of land influences supply. True False

The statement is true. The variables that influence supply are the availability of skilled labor; construction loans and financing, land, and materials.

The real estate market is unusually slow to respond to changes in supply and demand. True False

The statement is true. When the equilibrium between supply and demand is upset, it can be years before the imbalance is corrected.

A seller's market develops when the supply and demand equilibrium is upset by excess demand. True False

The statement is true. Whenever the supply and demand equilibrium is upset by excess demand, a seller's market develops. Whenever the supply and demand equilibrium of a market is upset by excess supply, a buyer's market develops.

Buyer's Market

The supply of available properties exceeds the demand.

Supply is the amount and type of real estate available for sale or rent at differing price levels in a given real estate market. Variables that influence supply are

availability of labor, availability of construction loans and financing, availability of land, and availability of materials.

Demand is the desire and ability to purchase or rent goods and services. Variables that influence demand are

price of real estate, population numbers and household composition, income of consumers, availability of mortgage credit, and consumer taste or preferences.