Property Jargon Flashcards
Demand
Definition: The quantity of real estate space or units desired at various prices.
Example: Demand for housing increases when prices are affordable.
Factors Affecting Demand:
- Price: Higher prices generally reduce demand, while lower prices increase demand.
- Economic Conditions: Economic growth, employment rates, and overall financial stability influence demand.
- Interest Rates: Low interest rates can spur demand as borrowing costs decrease.
- Consumer Preferences: Changes in lifestyle, demographics, and cultural trends affect the types of properties demanded.
Market Size
Definition: The number of potential buyers or occupants in a market.
Example: Growing population in a city increases the market size for housing.
Factors Affecting Market Size:
Population Growth/Immigration: Increasing population expands the market size.
Business Expansion: Growing businesses attract more people, influencing the market size.
Price Elasticity of Demand
Definition: The percentage change in quantity demanded in response to a 1% change in price.
Example: If the price elasticity is -0.5, a 1% increase in price reduces demand by 0.5%.
Factors Affecting Price Elasticity:
- Availability of Substitutes: More substitutes lead to higher elasticity.
-Necessity vs. Luxury: Necessities usually have less elastic demand compared to luxury items.
Income/Wealth
Definition: The financial resources available to individuals or households.
Example: Higher income enables more spending on retail and housing
Factors Affecting Income/Wealth:
- Economic Growth: A growing economy often leads to higher income and wealth.
- Government Policies: Taxation and welfare policies can influence disposable income.
Prices of Substitutes
Definition: The cost of alternative goods or services that can replace the current one.
Example: If apartment rents rise, demand for buying houses (a substitute) might increase.
Factors Affecting Prices of Substitutes:
Supply and Demand:
- Fluctuations in supply and demand affect substitute prices.
- Technological Advancements: Innovations can create new substitutes or alter existing ones.
Exceptions
Definition: Anticipations of future events or trends.
Example: Expectations of housing prices rising in the future may drive current demand.
Factors Affecting Expectations:
- Economic Indicators: Reports on GDP, unemployment, etc., can shape expectations.
- News and Media: Media reports can influence public perceptions and expectations.
Strengths:
Provides a measure of leasing activity.
Limitations:
Doesn’t account for space vacated and doesn’t indicate changes in aggregate demand.
Gross Absorption
Definition: The total amount of space involved in all leases signed during a specific period.
Example: If 100,000 square feet of office space is leased in a month, it adds to the gross absorption.
Factors Affecting Gross Absorption:
- Economic Conditions: Economic growth and stability impact leasing activities.
- Business Expansion: Growing businesses lease more space, contributing to higher gross absorption.
Net Absorption
Definition: The change in a market’s occupied stock during a specific time period.
Example: If 80,000 square feet are leased and 20,000 square feet are vacated, the net absorption is 60,000 square feet.
Factors Affecting Net Absorption:
- Vacancy Rates: Higher vacancies might lead to negative net absorption.
- Economic Growth: Strong economic growth can increase demand for space, affecting net absorption.
Strengths:
Accounts for changes in occupied stock, giving a better picture of demand changes.
Limitations:
Needs to be understood in the context of the reasons behind the changes in occupied stock.
Average or Normal Absorption
Definition: An estimate of the average net absorption usually over a long historical period.
Example: The average absorption rate over the past 10 years is considered the normal absorption rate.
Factors Affecting Average Absorption:
- Economic Trends: Historical economic performance influences the average absorption rate.
- Market Dynamics: Supply-demand dynamics in the past affect the average absorption.
Strengths:
Provides a historical reference point for understanding market activity.
Limitations:
May not accurately represent future demand due to changing market dynamics.
Pent-up Demand
Definition: Demand that accumulates over time due to constraints or unmet needs.
Example: A high pent-up demand for housing may be seen after a period of economic downturn.
Factors Affecting Pent-up Demand:
- Supply Constraints: Insufficient supply can lead to pent-up demand.
- Economic Downturns: During economic downturns, demand might be suppressed, leading to pent-up demand
Strengths:
Highlights unmet demand that may drive future market activity.
Limitations:
Difficult to accurately quantify and predict pent-up demand.
Short Run
The short run in macroeconomic analysis is a period in which wages and some other prices do not respond to changes in economic conditions. In certain markets, as economic conditions change, prices (including wages) may not adjust quickly enough to maintain equilibrium in these markets.
Long-run supply elasticities
Long-run supply elasticities refer to the responsiveness of housing supply to changes in its determinants over an extended period. In the context of housing and real estate, “elasticity” measures the percentage change in quantity supplied of housing in response to a one percent change in a specific factor affecting supply.
The term “long-run” indicates that these supply elasticities are observed over a prolonged time horizon, allowing for adjustments and changes to take place in the housing market. It’s important to note that the long-run in economics often implies a time frame where all adjustments, including changes in production capacity, technology, and market conditions, have had the opportunity to occur.
Factors that may influence long-run supply elasticities in the housing market include:
Land availability and zoning regulations: The amount of available land for development and the rules and regulations governing land use can significantly impact housing supply.
Construction costs and technology: The costs associated with building materials, labor, and technology play a crucial role in determining the responsiveness of housing supply to changes in demand.
Permitting and approval processes: The speed and ease of obtaining permits and approvals for new housing developments can affect how quickly the supply of housing can adjust to changes in demand.
Economic and market conditions: General economic conditions, including interest rates, economic growth, and market demand, can influence the willingness of developers to construct new housing units.
Understanding the long-run supply elasticities helps policymakers, economists, and stakeholders in the real estate sector anticipate how the housing market will respond to various changes, enabling better planning and decision-making regarding housing policies, investments, and urban development.
Econometric analysis
Econometric analysis is a method used in economics to statistically analyze economic phenomena and relationships between different variables. It involves the application of statistical techniques to economic data to estimate and test hypotheses, forecast future outcomes, and understand the underlying structure of economic relationships.
Quantitative easing
Quantitative easing is a monetary policy action where a central bank purchases predetermined amounts of government bonds or other financial assets in order to stimulate economic activity. Quantitative easing is a novel form of monetary policy that came into wide application after the financial crisis of 2007–2008.
Equity Analyst
Forecasts - They produce research reports, projections, and recommendations concerning companies and stocks. Typically, an equity analyst specializes in a small group of companies in a particular industry or country to develop the high-level expertise necessary to produce accurate projections and recommendations.
