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Chapter 20

Real Estate Market Economics

QuestionAnswer
What is SUPPLY? the quantity of a product or service available for sale, lease or trade at any given time.
What is DEMAND? the quantity of a product or service that is desired for purchase, lease or trade at any given time.
What is PRICE? the amount of money or other asset that a buyer has agreed to pay and a seller has agreed to accept to complete the exchange of a good or service.
What is VALUE? estimate the monetary worth.
What is COST? the expenses necessary to generate and deliver the item to the market.
What is a MARKET? a place where supply and demand encounter one another: suppliers sell or trade their goods and services to demanders, who are consumers and buyers.
What is MARKET EQUILIBRIUM? the principle in which a market tends toward a state of equilibrium in which supply equals demand, and price, cost and value are identical.
What is BASE EMPLOYMENT? the number of persons employed in the business that represent the economic foundation of the area.
What is TOTAL EMPLOYMENT? in a market, base employment, secondary and support industries.
What is VACANCY? the amount of total real estate inventory of a certain type that is unoccupied at a given time.
What is ABSORPTION? the amount of available property that becomes occupied over a period of time.
The goal of an economic system is to... produce and distribute a supply of goods and services to satisfy the demand of its constituents.
The true price of an item or service is... the final number the parties agree to.
Price is not something of value in itself. It is a number that... quantifies value.
The value of something is based on four questions: how much do I desire it? How useful is it? How scarce is it? Am I able to pay for it?
The essential production costs are... costs of capital, materials and supplies; labor; management; and overhead.
A transaction arena is a... market
The equilibrium time lag is a theory where... markets strive for equilibrium, but in reality there is always a time lag between a recognized imbalance and the completion of the market adjustment.
As an economic commodity, real estate is... bought, sold, traded and leased as a product within a real estate market.
Real estate has certain unique traits, which are: inherent product value, unique appeal of product, demand must come to the supply, illiquid, slow to respond to changes, and decentralized, local market.
Inherent product value: land is a scarce resource as well as a required factor of production.
Unique appeal of product: since no two parcels of real estate can be alike, every parcel has its own appeal.
Demand must come to supply: since real property cannot be moved, real property investors and users must come to the supply.
Illiquid real estate cannot always be readily sold for cash.
Slow to respond to changes: real estate is relatively slow to respond to market imbalances because new construction is a large-scale, time consuming process.
Decentralized, local market: a real property cannot be shipped to a large, central real estate marketplace, therefore, real estate markets are local in nature.
In real estate, what is SUPPLY? the amount of property available for sale or lease at any given time.
In real estate, what is DEMAND? the amount of property buyers and tenants wish to acquire by purchase, lease or trade at any given time.
Units of supply, by property type, are: residential: dwelling units; commercial and industrial: square feet: agricultural: acreage.
Real estate supply responds to: development costs (particularly labor), availability of financing, investment returns, a community's master plan, government police powers and regulation
Units of demand, by property classification, are: residential: households: commercial and industrial: square feet: agricultural: acreage.
The demand for particular types of real estate relates to the... specific concerns of the users.
Residential users are concerned with: quality of life, neighborhood quality, convenience and access to services and other facilities, dwelling amenities in relation to household size, lifestyle, and costs.
Retail users are concerned with: sufficient trade area population and income, the level of trade area competition, sales volume per square foot of the rented area, consumer spending patterns, growth patterns in the trade area.
Office users are concerned with: costs of occupancy to the business, efficiency of the building and the suite in accommodating the business's functions, accessibility by employees and suppliers, matching building quality to the image and function of the business.
Industrial users are concerned with: functionality, the availability and proximity of the labor pool, compliance with environmental regulations, permissible zoning, health and safety of the workers, access to suppliers and distribution channels.
What is the engine that drives demand for real estate by all types in a market? employment.
Real estate supply and demand interact in the marketplace to produce... price movements.
Local market influences are... cost of financing, availability of developable land, construction costs, capacity of the municipality's infrastructure to handle growth, governmental regulation and police powers, changes in the economic base, in-and-out migrations of major employers
Regional and national economic forces influence the local real estate market in the form of: changes in money supply, inflation, national economic cycles.
The primary forms of government influence are: local zoning power, local control and permitting of new development, local taxing power, federal influence on interest rates, environmental legislation and regulations.
Created by: alli-bohanon
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