Real EstateReal Estate Principles and Practices Principles and Practices

Chapter 1Chapter 1

Real Estate and the EconomyReal Estate and the Economy

© 2010 by South-Western, Cengage Learning

© 2010 by South-Western, Cengage Learning

Key TermsKey Terms

Business cycles

Economic base

Free enterprise

Gross national product (GNP)

Open market system

Ownership cycle

© 2010 by South-Western, Cengage Learning

OverviewOverview

Real Estate impacts economy, community and society

Economic BaseEconomic Base

© 2010 by South-Western, Cengage Learning

Housing NeedsHousing Needs

Population Growth

Housing for Senior Citizens

Population Characteristics

Analysis of demographics

Changing family definition

© 2010 by South-Western, Cengage Learning

Contribution to the EconomyContribution to the Economy

¾ of Nations wealthResidential – largest number of units

Rights and benefits of real property ownership

Taxation

Corporations establish businesses and factories

Blighted areas reclaimed

© 2010 by South-Western, Cengage Learning

Real Estate Creates Real Estate Creates EmploymentEmployment

GNP: Gross National ProductGNP: Gross National Product

Study of Economics: Study of Economics: production, circulation and use of production, circulation and use of

income, wealth, and goodsincome, wealth, and goods

SpecializationSpecialization

© 2010 by South-Western, Cengage Learning

Real Estate Creates Real Estate Creates EmploymentEmployment

Plotting of SubdivisionPlotting of Subdivision

Heavy Equipment OperatorsHeavy Equipment Operators

General Contractors, Subcontractors, General Contractors, Subcontractors, Builders, Material SuppliersBuilders, Material Suppliers

Appliances & FurnishingsAppliances & Furnishings

Housing IndustryHousing Industry

© 2010 by South-Western, Cengage Learning

Real Estate Creates Real Estate Creates EmploymentEmployment

Services:Services:

Savings and LoansSavings and Loans

Title CompaniesTitle Companies

Insurance CompaniesInsurance Companies

AppraisersAppraisers

AttorneysAttorneys

City OfficesCity Offices

NurseriesNurseries

Local, state and federal governmentsLocal, state and federal governments

© 2010 by South-Western, Cengage Learning

Real Estate Creates Real Estate Creates EmploymentEmployment

Local governments: land use planning / zoningLocal governments: land use planning / zoning

HUDHUD

Licensed Real Estate ProfessionalsLicensed Real Estate Professionals

© 2010 by South-Western, Cengage Learning

Purchasing a HomePurchasing a Home

Home selection:Location

Style

Condition

Size

Proximity to:Public transportation

Schools

Shopping

Employment

© 2010 by South-Western, Cengage Learning

Purchasing a HomePurchasing a Home

Socioeconomic Contributions:

School system

Churches

Neighborhood Associations

Politics

Consumers

© 2010 by South-Western, Cengage Learning

How Economic Conditions How Economic Conditions Affect Real EstateAffect Real Estate

Free EnterpriseFree EnterpriseThe more you produce the more you receive

Open Market SystemOpen Market SystemConsumers decide what they want

Producers compete to supply those needs

Competition = improved products

© 2010 by South-Western, Cengage Learning

How Economic Conditions How Economic Conditions Affect Real EstateAffect Real Estate

Business cyclesBusiness cyclesEconomic conditions affect real estate values

Buyer’s and Seller’s markets are created locally

© 2010 by South-Western, Cengage Learning

How Economic Conditions How Economic Conditions Affect Real EstateAffect Real Estate

Supply and demand: strong force in determining market value

American dream: “owning a piece of the earth”

© 2010 by South-Western, Cengage Learning

How Economic Conditions How Economic Conditions Affect Real EstateAffect Real Estate

Need creates demand

Demand creates value

Issues creating valueGovernment laws governing legal rights

Location

Productivity

© 2010 by South-Western, Cengage Learning

Economic BaseEconomic Base

Land produces our nations' goods

Sound economic base results from production of commodities or services

Broad economic base better than one industry

Cities offer concession to large businesses for relocation

© 2010 by South-Western, Cengage Learning

The 1980’s, the 1990’s and The 1980’s, the 1990’s and into the 21into the 21stst Century Century

1980’s – fluctuated up and downDeficit of the federal government

Collapse of S & L’s

Farm bankruptcies and halt to inflation

Tax Reform Act of 1986

1987 Stock market plunge

Fluctuating interest rates

© 2010 by South-Western, Cengage Learning

The 1980’s, the 1990’s and The 1980’s, the 1990’s and into the 21into the 21stst Century Century

1990’s – fluctuated up and downLow interest rates - recessionary economy

Property values corrected – interest rate fell

Rates increased to ward off inflation

Economic growth – interest rates lowered

Record home sales

© 2010 by South-Western, Cengage Learning

The 1980’s, the 1990’s and The 1980’s, the 1990’s and into the 21into the 21stst Century Century

21st CenturyStock market plummeted

Corporations filed bankruptcy

Inters rates lowered

Foreclosures