Unit 15: The Real Estate Market and Analysis

Question 1

True/False The real estate market is unusually slow to respond to changes in supply and demand.

Answer 1

True. When the equilibrium between supply and demand is upset, it can be years before the imbalance is corrected.

Question 2

True/False Nonhomogeneous is a term that refers to the uniqueness of land.

Answer 2

True. Real estate is unique. No two tracts of land are identical. The uniqueness of land is called heterogeneity (nonhomogeneous).

Question 3

True/False The availability of land influences supply.

Answer 3

True. The variables that influence supply are the availability of skilled labor; construction loans and financing, land, and materials.

Question 4

True/False Consumer taste or preferences is a variable that influences demand.

Answer 4

True. The variables that influence demand include the price of real estate, population numbers and household composition, income of consumers, availability of mortgage credit, and consumer taste or preferences.

Question 5

True/False Market indicators include price levels, vacancy rates, and sales volume.

Answer 5

True. Price levels are indicators of new housing supply and demand for certain price ranges, vacancy rates indicate the need and demand for housing in a certain market, and sales volume can be used in estimating the direction and rate of growth.

Question 6

True/False Of a 430-unit apartment building, 387 units have been rented out. The building’s occupancy rate is 85%.

Answer 6

False. 387 ÷ 430 = .90 occupancy rate

Question 7

True/False A seller’s market develops when the supply and demand equilibrium is upset by excess demand.

Answer 7

True. Whenever the supply and demand equilibrium is upset by excess demand, a seller’s market develops. Whenever the supply and demand equilibrium of a market is upset by excess supply, a buyer’s market develops.

Question 8

(1) real estate is immobile; (2) land is indestructible (durable); and (3) real estate is unique (nonhomogeneous).

Answer 8

Physical characteristics of the real estate market

Question 9

(1) government controls influencing the market through zoning, building codes, and taxes; (2) the market’s slow response to change in supply and demand; (3) area preference (situs) influencing the price buyers are willing to pay; and (4) supply and demand interacting to affect property prices.

Answer 9

Economic characteristics of real estate

Question 10

is the amount and type of real estate available for sale or rent at differing price levels in a given real estate market. Variables that influence supply are availability of labor, availability of construction loans and financing, availability of land, and availability of materials.

Answer 10

Supply

Question 11

is the desire and ability to purchase or rent goods and services. Variables that influence demand are price of real estate, population numbers and household composition, income of consumers, availability of mortgage credit, and consumer taste or preferences.

Answer 11

Demand

Question 12

refers to prospective buyers’ preference for a certain area.

Answer 12

Situs

Question 13

occurs when the supply and demand equilibrium is upset by excess supply (supply exceeds demand).

Answer 13

A buyer’s market

Question 14

occurs when the supply and demand equilibrium is upset with excess demand (demand exceeds supply).

Answer 14

A seller’s market

Question 15

the percentage of unoccupied rental units.

Answer 15

A vacancy rate

Question 16

There are 315 apartments rented in a 350-unit apartment building. What is the building’s occupancy rate?

A) 95%
B) 75%
C) 80%
D) 90%

Answer 16

D) 90%. 315 rented units ÷ 350 total units = .90 or 90% occupancy rate.

Question 17

Which characteristic is NOT a physical characteristic of real estate?

A) Land is durable.
B) Land is immobile.
C) Real estate is nonhomogeneous.
D) The market is slow to respond to change in supply and demand.

Answer 17

D) The market is slow to respond to change in supply and demand.

The market is slow to respond to change in supply and demand is an economic characteristic of real estate.

Question 18

When the equilibrium of the real estate market is upset by excess demand,

A) a seller’s market exists.
B) a buyer’s market exists.
C) demand decreases.
D) builder activity decreases in response to the need.

Answer 18

A) seller’s market exists. When the supply and demand equilibrium is upset by excess demand, a seller’s market exists.

Question 19

What is a building’s vacancy rate if 621 units are rented in a 690-unit building?

A) 25%
B) 90%
C) 75%
D) 10%

Answer 19

D) 10%. 690 total units – 621 rented units = 69 vacant units. 69 units ÷ 690 total units = .10 or 10% vacancy rate.

Question 20

Which characteristic does NOT describe the real estate market?

A) The market is slow to respond to changes in supply and demand.
B) Land is homogeneous.
C) The government uses indirect controls.
D) Land is indestructible.

Answer 20

B) land is homogeneous. Real estate is heterogeneous; no two tracts of land are identical.

Question 21

What type of relationship is said to exist between price and supply?

A) Inverse
B) Positive
C) All of these
D) Unrelated

Answer 21

A) Inverse

Price and supply are inversely (oppositely) related. When supply goes down, prices go up. When supply goes up, prices go down.

Question 22

Which statement is FALSE regarding the relationship between price and demand?

A) There is an inverse relationship between price and demand.
B) Decrease in price causes an increase in demand.
C) An increase in price causes an increase in demand.
D) An increase in price causes a decrease in demand.

Answer 22

C) increase in price causes an increase in demand. An increase in price causes a decrease (not an increase) in demand.

Question 23

Which data is the LEAST helpful as a real estate market indicator?

A) Zoning regulations
B) Number of houses sold and price levels
C) Number of building permits issued
D) Vacancy rate of rental units

Answer 23

A) zoning regulations. Good market indicators include data regarding price levels and building permits issued, vacancy rates, and sales volume.

Question 24

The barometer of the real estate market is considered to be the

A) change in consumer income.
B) number of housing starts.
C) cost and availability of credit.
D) change in consumer tastes.

Answer 24

C) cost and availability of credit. The barometer of the real estate market is considered to be the cost and availability of credit.

Question 25

One person or a group of persons occupying a separate housing space is technically defined as a

A) multiple ownership unit.
B) family.
C) household.
D) unit.

Answer 25

C) household. A household, as defined by the U.S. Census Bureau, is any person or group of persons occupying a separate housing space.

Question 26

The land use that generates the MOST income to the land and improvements is called

A) highest and best use.
B) economic use.
C) durability of land.
D) situs.

Answer 26

A) highest and best use. The highest and best use of land is the use that generates the most return (income) to the land and improvements compared with alternative uses.

Question 27

When fewer buyers are competing for a large supply of homes what type of market results?

A) Seller’s market
B) Highest and best use is in transition
C) Buyer’s market
D) Vacancy rates are depleted

Answer 27

C) buyer’s market. When the supply and demand equilibrium is upset by excess supply, a buyer’s market develops.