Chapter 15 Section 2

Question 1

supply

Answer 1

-the quantity of an item that is available, or anticipated to be available for sale

Question 2

price

Answer 2

-a function of the number of items available in relation to the number of items in demand

Question 3

the supply of real estate is affected by these factors

Answer 3

-availability of materials
-availability of skilled labor
-availability of construction loans and financing
-availability of land
-increased productivity

Question 4

availability of materials

Answer 4

-a decrease in the availability of materials can increase the cost of materials and drive up builder’s costs

Question 5

availability of skilled labor

Answer 5

-a decrease in the availability of skilled labor can increase labor costs and drive up the cost of new construction to the point where new construction prices are prohibitive

Question 6

availability of construction loans and financing

Answer 6

-as interest rates on construction loans rise, the cost of borrowing money escalates and builder’s costs increase

Question 7

availability of land

Answer 7

-a shortage in the supply of available land can drive up the cost of acquiring land for new development

Question 8

increased productivity

Answer 8

-increased productivity can result in increase in supply

Question 9

supply of real estate includes the following four categories

Answer 9

-the number of vacant properties for sale
-the number of properties that are under construction but not finished
-properties that have been permitted but not constructed
-projects that have been announced but not permitted

Question 10

net household formations

Answer 10

-the basic measure of demand for residential real estate is net household formations which is the net difference between the number of households expected to be created within a period of time and the number of households expected to be eliminated during that same period of time

Question 11

living units

Answer 11

-the US bureau of Census defines a household as a “living unit”
-net household formation is a measure of living units, not population

Question 12

factors of demand

Answer 12

-price
-income
-credit
-population
-consumer preferences

Question 13

price

Answer 13

-principally the result of the interaction of material and labor costs
-demand will typically decrease as prices rise

Question 14

income

Answer 14

-demand is fueled by income
-effective demand is the combination of a buyer’s desire for an item that is coupled with the ability to pay for the item
-demand is not created until both components are met

Question 15

credit

Answer 15

-as credit becomes more readily available and interest rates go down, demand increases
-the availability of credit is said to be a key market indicator, often referred to as the barometer of the real estate market

Question 16

population

Answer 16

-as population grows, so does demand

Question 17

consumer preferences

Answer 17

-demand is influenced by changes in preference

Question 18

market equilibrium

Answer 18

-market equilibrium is said to occur when supply and demand are in balance
-when there are more buyers than sellers, a seller’s market exists
-when there are more sellers than buyers, a buyer’s market exists

Question 19

the real estate business cycle

Answer 19

-expansion
-peak
-contraction
-trough

Question 20

expansion

Answer 20

-both supply and demand increase
-market is vibrant during this period
-this period is typically evidenced by increasing prices since supply cannot keep up with increasing demand

Question 21

peak

Answer 21

-generally short lived and evidenced by a drop in demand
-as demand declines, supply continues to increase, and an oversupply becomes evident

Question 22

contraction

Answer 22

-evidenced by a decline in supply from levels at the peak of the market
-some demand is still present, but the available supply is more than adequate to meet that demand
-contraction continues until oversupply is absorbed

Question 23

trough

Answer 23

-the low end of the cycle where supply and demand are nearly static