Tri-Cities Washington Real Estate News & Blog

Drawing on partial equilibrium analysis involving supply and demand, urban economics, spatial economics and finance ‘Real Estate Economics’ is driven towards descriptive analysis, pattern and price prediction and estimated study of building production and real estate consumption.

The constant players in real state markets are ‘Owners or Users’ for whom the property is an investment on business or personal utilization. The following category of ‘Owners’ is dedicated investors who are more inclined towards lasing or renting out the property rather than consuming it. The ‘Renters’ are singularly consumers. These three groups comprise the demand side f the market.

He supply side is composed of the ‘Developers’ transforming raw land into lucrative market product, the ‘Renovators’ providing restored buildings, catering to market demands and the ‘Facilitators’ mediating and establishing buying and selling of real estate properties. The last category includes banks, real estate brokers, lawyers and related groups.

Some of the distinctive features of a real estate market can be identified as ‘Durability’ of a property that has given rise to the concept of stock/flow.

‘Heterogeneity‘ explains how every piece of real estate is exclusive in terms of location, building and financing. Moreover, the market is segmented into residential, commercial and industrial sectors and subcategories like recreational, income generating, are and historical/protected. This uniqueness creates information asymmetry restricting substitutability for economists.

Scrolling down the list, the High Transaction Cost’ using accessory costs like search cost, real estate fees, moving costs, legal fees, land transfer taxes and deed registration fees. The cost varies between 8-10% of the purchase price.

Disequilibria resulting from long-term delays often effects market adjustment. Here time is consumed by finance, design, construct new supply and relatively slow rate of demand fluctuation.

A dual nature of real estate persists in market investment. Purchase can have the objective of attaining returns or simple consumption or a combination of both.

Real estate is also immobile seen from the perspective of location. This spatial fixity involves market adjustment where movement of the goods is compensated by movement of people to dwelling units. A combination of this staticity with the close proximity of housing units in urban areas suggest the potential for externalities inherent in a given location.

The element of demography happens to be the foremost determinant in demand for housing. This teams up with the allied factors like income, price of housing, cost and availability of credit, consumer preferences, investor preference, price of substitutes and price of compliments. The growth and size of population, or to be more specific, the economic stature of a family is directly proportional to demand for housing. Income factor comes next in priority followed by price of housing.

Housing supply is created out of the ingredients like land, labor, electricity, building materials. And the quantity of new supply is decided by the cost of these inputs, the price of the existing sock of houses and the technology of production.

The adjustment mechanism, allied to the real estate is a stock/flow model reflecting the study that 98% of the market is composed of the existing stock whereas the remaining 2% is the variable flow of new buildings.

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