Real estate

Page history last edited by Brian D Butler 1 yr ago

  1. Finding Real estate for entrepreneurs & startups
  2. Real estate
    1. Opportunities after the bursting of the bubble in 2007?
  3. Housing index:
    1. see also
    1. Real estate markets around the world
    2. Business sector
    3. Levels
    4. US Housing Industry
    5. What causes housing booms and slumps?
      1. U.S. Economic Cycles
      2. Interest Rates
  4. Concepts to watch
  5. Wikipedia Links

 

Finding Real estate for entrepreneurs & startups

 

 

 

Real estate

 

One key issue in the real estate market is liquidity, which you can think of as the time it takes to sell your home.  As far as liquidity goes, a condominium in a large metropolitan area is generally quite liquid, and might sell within days or weeks of being put on the market.  But a family home in the suburbs is generally less liquid, and might take months to sell.  

 

 

Opportunities after the bursting of the bubble in 2007?

 

Blackstone Group has raised the biggest real estate fund of its kind in history. Real Estate Partners VI Fund has $11 billion in contributions. The "opportunity fund" will buy risky and distressed properties that will be turned around and sold off for profit. CNNMoney.com/Associated Press (04/01)

 

Housing index:

 

There are three indexes out there.  Only one is good.  See S&P Case-Shiller index

 

Be very careful of the REALATORS index....which is too optimistic, and also of the FEDERAL Reserve index, which is based on the data from Fannie May, Freddie Mac....because they dont include subprime lending, and are therefore too optimistic as well.  

 

The only good, best index is from Case/ shiller.

 

 

see also

 

 

Real estate markets around the world

 

see our discussion about global real estate markets

 

 

 

Business sector

With the development of private property ownership, real estate has become a major area of business. Purchasing real estate requires a significant investment, and each parcel of land has unique characteristics, so the real estate industry has evolved into several distinct fields. Specialists are often called on to valuate real estate and facilitate transactions. Some kinds of real estate businesses include:

  • Appraisal - Professional valuation services
  • Brokerages - Assisting buyers and sellers in transactions
  • Development - Improving land for use by adding or replacing buildings
  • Property management - Managing a property for its owner(s)
  • Real Estate Marketing - Managing the sales side of the property business
  • Real Estate Investing - Managing the investment of real estate
  • Relocation services - Relocating people or business to a different country

Within each field, a business may specialize in a particular type of real estate, such as residential, commercial, or industrial property. In addition, almost all construction business effectively has a connection to real estate.

 

 

Levels

According to The Economist, "developed economies'" assets at the end of 2002 was

  • Residential property: $48 trillion
  • Commercial property: $14 trillion
  • Equities: $20 trillion
  • Government bonds: $20 trillion
  • Corporate bonds: $13 trillion
  • Total: $115 trillion

That makes real estate assets 54% and financial assets 46% of total stocks, bonds, and real estate assets. Assets not counted here are bank deposits, insurance "reserve" assets, and human assets

 

 

 

US Housing Industry

 

The U.S. housing market includes the construction, sale, and resale, of all residential properties across the country. Even though it's only focused on housing, conditions in the housing market are indicative of the state of the economy as a whole. Homes are durable goods, meaning that new home construction and sales are often highly correlated with economic cycles; people tend to buy new homes only when they are confident that they'll have enough income to pay for it, so economic downturns can depress the housing market considerably. In addition to the buildings themselves, homes require appliances, furniture, utility services, and any number of other secondary goods and services. When a new home is built and purchased, the financial impact of that sale continues on indefinitely, every time the owner buys a lightbulb or pays the electricity bill. As such, conditions in the housing market are monitored closely, given their widespread implications.

 

Currently, the housing market is somewhat shaky, due largely to the collapse of the subprime lending industry. The number of new homes sold in 2007 is projected to fall 19% from 2006 levels, according to the National Association of Realtors; existing home sales aren't faring well either, with a projected 6.8% drop over 2006 sales figures.

 

What causes housing booms and slumps?

The housing market is very closely related with prevailing economic conditions. There isn't a perfectly clear cause-and-effect relationship between the two; conditions in one can impact the other, and vice versa. In general, the housing market reflects the state of the economy as a whole. There are times when the economy seems to be humming right along, but the demand for residential real estate falls nonetheless. In cases such as these, the slump is often a sign of economic weakness that just hasn't manifested itself in other areas of the economy. While the relationship between the housing market and the entire economy is somewhat complicated, there are some observable factors that can impact the demand for residential real estate.

 

 

 

U.S. Economic Cycles

Business cycles have a number of significant repercussions for the economy. The most notable of these is the fact that household disposable income rises during booms and falls during recessions. The average American's purchasing power, therefore, rises and falls in tune with these economic cycles. When disposable incomes decrease, spending decreases overall, but some goods and services are more sensitive to these changes than others. Food and gasoline are two goods that are relatively less affected by these cycles; people still need to eat and get around, even during hard times. Durable goods, or larger purchases that are generally meant to last a while, are very hard hit by recessions, however. For example, if a person's income is halved, their food consumption will probably not change that much; they will be more likely, however, to put off buying a new washing machine, car, or house. Since these goods are "durable", the ones they already have will probably last until their finances improve.

Because the demand for durable goods decreases during recessions, and a house is about as durable as a good gets, the residential real estate market is extremely sensitive to economic cycles. A recession can lead to lower demand for new home construction, appliances, furniture, and even cars.

 

Interest Rates

interest rates are another factor that can dramatically impact the housing market and new home construction. When interest rates either rise or fall, the economy as a whole is affected. The housing market, however, is particularly sensitive to these changes for a number of reasons.

 

 

Cost of Borrowing

As interest rates increase, it becomes more expensive to obtain a mortgage on a home. Given mortgages' generally long terms (usually 15 or 30 years), even small changes in interest rates can significantly impact monthly payments and the total cost of buying a new home. Higher interest rates are likely to cause a decrease in demand for housing due to these rising costs. Conversely, lower interest rates can make borrowing money cheaper and stimulate demand in the housing market.

 

Subprime mortgages (see subprime lending)

 

 

Increasing interest rates can also harm preexisting mortgages and result in higher foreclosure rates, increasing the supply of homes on the market just as it becomes more expensive to buy them. The reason for this is the adjustable-rate mortgage, or ARM. ARMs are different from fixed-rate mortgages in that the interest rate is variable, changing with current interest rates throughout the term of the mortgage. These ARMs became very popular in the early- to mid-2000s, when low introductory, or "teaser", rates caused many people to take out ARMs and buy houses. After the introductory period, however, the rates on these ARMs were reset to reflect current interest rates, resulting in much higher monthly payments. As a large percentage of these ARMs were made to  borrowers, many of whom could not afford the higher monthly payments, increasing numbers of homes began being repossessed. As many ARMs are still in their introductory periods, future waves of rate resets could further increase foreclosure rates. Interest rate increases could further exacerbate the problem, causing even more consumers to default on their mortgages. This increased number of foreclosures could lead to rising inventories of homes for sale, which would, in turn, depress real estate prices and decrease demand for construction.

 

 

Concepts to watch

external links

 

Comapny iconInterest Rates - This article describes the impact of interest rates. A related concept is the Yield Curve. An interest rate is the cost of borrowing money. Among the many industries affected... read more
Comapny iconNew Home Construction - New home construction is a surprisingly complicated process that affects many different companies and industries. As such, increases or decreases in the number of new... read more
Comapny iconTimber Prices - Timber, or trees cultivated and harvested for commercial purposes, is used in a wide range of industries. Timber's end products are among the most basic yet widely used goods... read more
Comapny iconU.S. Housing Market - The U.S. housing market includes the construction, sale, and resale, of all residential properties across the country. Even though it's only focused on housing,... read more

 

 

 

Wikipedia Links

 

 

Comments (0)

You don't have permission to comment on this page.

Printable version
 
Anonymous Create an account or Log in