a measure of the present worth of future benefits as perceived by each person.
involve periods of expansion, recession, depression, and revival
The real estate market is considered local in character because
land is fixed, or immobile
In general, when the supply of a certain commodity increases
prices tend to drop
Price is best defined as the
amount a buyer agrees to pay and a seller agrees to accept
Compared with typical markets, the real estate market
is relatively slow to adjust because of its nonhomogeneity and its immobile characteristics
In general terms, the term market refers to
a place where buyers and sellers come together to establish prices
The term area preference refers to
an economic characteristic of land
The term nonhomogeneity refers to
the fact that no tow parcels of land are exactly alike.
Relative scarcity implies that
land available for development may be in short supply in some areas
What the the seven basic characteristics that determine real estate value and affect their use? Are they economic or physical? Why?
-relative scarcity; economic; supply and total amount of land is fixed
-Improvements; economic; construction and modification, can affect the value, can influence other parcels favorably or unfavorably.
-Permanence of Investment; economic; how can the parcel bring to future investments
-Area Preference; economic; most important economic characteristic of land; situs; people's choice and preferences for a given area; people pay more for corner lots
-Immobility; physical; the geographic location of any given parcel of land can never be changed; fixed location
-Indestructibility; physical; stabilize investments of land, cannot be depreciated and is not insurable; improvements on land can be affected by depreciation and can reduce the land's value.
-Nonhomogeneity; physical; no two parcels are exactly the same; fixed location and address
What characteristics can affect land use?
-contour and elevation of the parcel; topography
-availability of natural resources; water
The economic and physical characteristics of real estate form the underlying basis for the determination of what?
value; the amount of goods or services considered to be a fair and suitable equivalent for something else.
Value is based on what two factors? Describe them.
objective; a house fitted with a marble entrance hall and hardwood floors would have a greater objective value than a house with only rough concrete floors.
subjective; affected by the relative worth an individual places on a specific item.
When supply goes up what happens? When demand goes up what happens?
-when supply goes up, prices drop as more sellers compete for buyers
-When demand goes up, prices rise as more buyers compete for product.
What factors affect supply? Describe them.
Labor supply, Construction cost; a shortage or increase in cost of skill or materials can decrease amount of new construction.
-Government controls and financial policies;The Federal Reserve Board establishes a discount rate of interest for the money it lends to commercial banks; that rate has a direct impact on the interest rate the banks charge to borrowers.
What government agencies determine the terms and conditions under which money is available to lenders for mortgage loans?
Federal Housing Administration (FHA)
Ginnie Mae (the Government National Mortgage Association)
What associations created the Consumer Financial Protection Bureau (CFPB)? What does the CFPB have control over?
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
They signed over several federal consumer protection laws to the CFPB; the Real Estate Settlement Procedures Act (RESPA), Home Ownership and Equity Protection Act (HOEPA), and Truth in Lending Act (TILA), given broad authority to write rules to protect consumers from unfair or deceptive financial products and practices.
Virtually any government action can have some effect on the real estate market.
What are some of the things local governments can influence in real estate?
supply, land-use controls, building codes, zoning laws, and taxation policies.
Local governments can produce tax incentives or tax abatements that can what?
attract new businesses and industries by reducing or eliminating their property taxes; increase jobs; increase housing market.
What factors affect demand? Describe them.
-Population; the demand for housing grows with the population; area characteristics
-Demographics; the study and description of the population; family size, age, income, lifestyle, etc.
-Employment and wage levels; decisions on buying or renting, how much to spend on housing.
Business activity is measured by what?
Gross domestic product (GDP)
the long-term trend that tends to be smooth and continuous. It is most affected by basic influences such as population, growth, technological advances, capital accumulation, etc.
The number of "housing starts" can lead the economy either into a recession or out of a depression because
the housing industry is very sensitive to changes in interest rates.