Unit 1.3

Question 1

Factors Affecting Supply

Answer 1

Factors that tend to affect the supply side of the real estate market’s supply and eal demand balance include labor force availability, construction and material costs, and governmental controls and financial policies.

Question 2

Labor Force, Construction, and Material costs

Answer 2

A shortage of skilled labor or building materials or an increase in the cost of materials can decrease the and amount of new construction. High transfer costs, such as taxes and construction permit fees, can also discourage development. Increased construction costs may be Ors. passed along to buyers and tenants in the form of higher sales prices and increase rents that can further slow the market.

Question 3

Governmental Controls and Monetary Policy

Answer 3

The government’s mone- tary policy can have a substantial impact on the real estate market. The Federal Reserve Board (the Fed) establishes a discount rate of interest for the money it lends to commercial banks. That discount rate has a direct impact on the inter- est rates the banks charge to borrowers, which in turn plays a significant part in people’s ability to buy homes. The Federal Housing Administration (FHA) and the Government National Mortgage Association (Ginnie Mae) can also affect the amount of money available to lenders for mortgage loans. Even apart from financing concerns, virtually any government action has some effect on the real estate market. For instance, federal environmental regulations may increase or decrease the supply and value of land in a local market. Real estate taxation is one of the primary sources of revenue for local governments. Policies on taxation of real estate can have either positive or negative effects. While high may deter investors, tax incentives may attract new businesses and industries and bring increased employment and expanded residential real estate markets.

local governments also influence supply. Land use controls, building codes, and zoning ordinances, help shape the character of a community and control the use of the land. Carful planning can help stabilize , and even increase, real estate, values.

Question 4

Factors Affecting Demand

Answer 4

Factors that tend to affect the side of the real estate market include demand popu- lation, demographics, and employment and wage levels.

Question 5

Population

Answer 5

Because shelter is a basic human need, the demand for housing grows with the population. Although the total population of the country conti ues to rise, the demand for real estate increases faster in some areas than in othe In some locations, growth has ceased altogether or the population has declined This may be due to economic changes (such as business closings), social concerns (such as the of schools or a desire for more open space), or population quality changes (such as population shifts from colder to warmer climates). The result can be a drop in demand for real estate in one area, which may be matched by increased demand elsewhere.

Question 6

Demographics

Answer 6

Demographics The study and description of a population is called demograph The population of a community is a major factor in determining the quantity and type of housing in that community. The number of occupants per house. hold and their ages, the ratio of adults to the number of retirees, family income, and lifestyle are all demographic factors that contribute to the amount and type of housing needed.

Question 7

Employment and Wage Levels

Answer 7

Employment and Wage Levels Decisions about whether to buy or rent and how much to spend on housing are closely related to income. When job oppor tunities are scarce or wage levels low, demand for real estate usually drops. The market might, in fact, be affected drastically by a single major employer moving in or shutting down. Real estate professionals should stay informed about the busi ness plans of local employers.

As you have seen, the real estate market depends on a variety of economic forces, such as interest rates and employment levels. To be successful, real estate profes als follow economic trends and anticipate where those trends will lead How people use their income depends on consumer confidence, which is based not only on perceived job security but also on the availability of credit and the impact of inflation. General trends in the economy, such as the availability of mortgage money and the rate of inflation, will influence people’s spending decisions