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    Add as FriendSession Seven : Residential, Real Estate & Markets

    by: Rogers

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    1 : Session Seven Residential Real Estate Markets Page 33
    2 : Real estate economic characteristics Fixed supply in short run Immobile-Local market is key Long economic life Lack of standardization Key Concept: Short term movements in prices and rents caused by changes in demand, not in supply.
    3 : What is a “market”? A place where buyers and sellers meet to exchange items of value. Competition varies directly with: Number of buyers Number of sellers Homogeneity of units available Knowledge by all parties vs. advantage over the other party to distort price or market activity
    4 : Real Estate Markets Imperfect Perfect market would have numerous knowledgeable buyers and sellers Few buyers and sellers Not knowledgeable Perfect market sells homogeneous, small and inexpensive products Page 33
    5 : List four examples of homogenous products: _______________________ _______________________ _______________________ _______________________ Page 33
    6 : Characteristics of the Real Estate Market Buyers & sellers are not numerous Local nature of the market Number of buyers/sellers for a particular class of property is usually limited Number of buyers/sellers is small in comparison to other commodities Real estate is heterogeneous, bulky, expensive Each property has a different location that is permanently fixed Combined land, capital & financing is unique Soil, topography, climate unique Expense of durability and complex nature of dirt Page 33
    7 : Characteristics of the Real Estate Market Buyer/Seller knowledge is frequently poor due to Infrequency of entry into the market Limited number of comparable bids and offers Complexity of legal requirements needed to transfer ownership
    8 : Characteristics of the Real Estate Market Willingness of buyers/sellers impaired due to Limited supply of real estate Limited number of buyers and sellers Limited financing options for particular properties Differences in compulsion to buy by individuals Supply of land is fixed Land is fixed = fixed supply Housing units (density) may be increased Construction time Average of 2 years to increase/build units Short run: supply limited Long run: supply may be increased
    9 : Imperfect market compels buyers and sellers to use a real estate professional Professional has higher knowledge of legal and technical aspects Real Estate Market
    10 : Real Estate Supply Land is fixed Number of housing units on land is not fixed. Increasing supply takes a long time. Page 33
    11 : Real Estate Supply is Fixed in the Short-Run Demand Price Supply Quantity Rents and Prices change with shift in Demand $
    12 : Compare Price/Rents when Demand changes with Fixed Supply
    13 : Increase in Supply when Demand remains same will lower Price or Rent “Over Building” Supply * Demand
    14 : If there is an increase in demand Increased demand reduces vacancies Reduction in vacancies increases rents and prices bid for short-term fixed supply Those who cannot afford higher rents/prices: Share space with others Move to less expensive property Increase density and intensity of use
    15 : Real Estate Demand Increase in Demand caused by Population Income Cost Government action Page 33
    16 : Real Estate Supply Increase in supply is caused by: Construction Conversion Demolition Destruction Page 33
    17 : If there is a decrease in demand Increased vacancies Decline in rents and prices Lower rents/prices leads to: Moving up to higher price area Reduced density
    18 : Assuming an increase in demand, supply will eventually change: Profit motive: Demand pushes rents & prices up Construction increases (if no growth limits) Supply overtakes increased demand, vacancies increase Vacancies lead to falling rents and prices Lower rents/prices: Different between building costs/rents/sales narrows No longer profitable to build
    19 : Assuming a decrease in demand, supply will change: As demand falls, vacancies increase Increased vacancies lead to fall in rents/prices More space available at lower cost Long term affects of rent/price decrease: Out-of-pocket costs for least desirable property Costs exceed income generated Abandonment or demolition
    20 : Rent controls Rents are high because demand exceeds supply To rebalance the market: Demand must decrease Supply must increase Rent controls tend to: Increase demand by keeping rents low Decrease supply by maintaining low rents Low returns for investors reduces construction Be politically motivated
    21 : Real Estate Agent’s Role Client/customer rely upon agent expertise Knowledgeable, ethical agent help overcome market imperfections: Increasing number of buyers/sellers Increase knowledge of buyer/seller Aware of rents/prices Types of profitable investmetns Lead principals through legal complexities Give financing sources and alternatives
    22 : Real Estate Sub Markets Occupancy – The desire to receive direct services from the property Investment – The desire to receive services in the form of a profit May be non-monetary rewards Prestige/pride of ownership
    23 : Real Estate Market Investment Occupancy Residential Commercial Office Industrial Residential Commercial Office Industrial Own Rent Own Rent Own Rent Own Rent Own Rent Own Rent Own Rent Own Rent 1-4 Family Multi-Family 1-4 Family Multi-Family
    24 : Forecast Variables Residential Housing SUPPLY VARIABLES 1. Rate of New Construction Construction Cost Land Availability Credit for Construction Demand for Housing 2. Rate of Conversions Interest rates Economic base trends Environmental Constraints Coastal controls Building moratoriums sewer and water Planning controls Zoning Building codes 3. Rate of Demolitions Number of existing housing units
    25 : FORECAST VARIABLES RESIDENTIAL HOUSING DEMAND VARIABLES 1. Population a. Numbers c. Owner Occupied b. Demography d. Renters 2. Income Economic base trends and employment Disposable income trends Discretionary income for speculation and investment 3. Costs Cost of household operation 4. Credit Interest rates Loan-to-value ratios Payback periods Borrower qualifications 5. Other Factors: Tastes and Customs Single family vs. condominiums Trading up and filtering Rent vs. buying
    26 : CONCERNS FOR BOTH SUPPLY AND DEMAND IMPACT OF INFLATION Actions of Federal Reserve Speculators seeking gains Rates of returns Fiscal policy of government Property and income taxes IMPACT OF ENERGY SHORTAGES Transportation: Number of highways and cost of travel 2. Utility rates 3. Size of homes
    27 : Market Characteristics Owner-occupied residential Buyers/sellers have Lack of knowledge Lack of experience Circumstances Family reasons Employment Not profit motive Use of agent specialists Escrow Loan brokers Real estate sales agents 1-4 unit Residential Investment Similar to owner-occupied Demand parallels owner-occupied 5+ multi-family Residential Principals more informed Principles have more experience] Knowledge highly specialized Broker Appraiser Certified Property Manager Tax & Legal Advisors Future profit motive forecasting
    28 : Compare Current Market Indicators Number of deeds recorded Number of loans: conventional, DVA, FHA Foreclosure rates Trends in rents and resale prices Building permits/subdivision activity Construction costs Vacancies (utility company; change of address) New home inventory Classified section activity MLS, including price changes Local population trends Government housing support programs
    29 : Affordability Index MEDIAN PRICE CALIFORNIA HOME $ __________ MEDIAN HOUSEHOLD INCOME $ ______________ Prevailing California interest rates ___________% Do we have problems right here in River City? Median Price for U. S. Home $ ______________________ Median Household Income $ ________________________ Prevailing U. S. interest rate ___________%

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