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Fundamentals of real estate > Unit 1-2: Economics > Flashcards

Unit 1-2: Economics Flashcards

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1
Q

Economics

A

Study of how best to use limited resources to meet wants of citizens

Goods and services and related interaction theories

Macro and microeconomics

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2
Q

Macroeconomics

A

Analysis of economy-wide phenomena (inflation, unemployment) and related factors in a country

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3
Q

Microeconomics

A

Study on how people, households, and businesses allocate limited resources based on decisions and behaviours affecting supply and demand = pricing = supply and demand

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4
Q

Economic growth

A

Long-term expansion of productive potential of economy (% change GDP) adjusted for inflation

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5
Q

GDP

A

Economic indicator (stability)
Measures progress of rate of expansion of capcaity to produce goods and services

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6
Q

Economic growth

A

Accumulating human capital (knowledge & skills), physical capital (equipment, machines), new tech

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7
Q

4 Causes of Economic Growth

A

Natural resources
Capital
Rate of savings
Technological progress

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8
Q

Economic growth: Natural resources

A

Need skilled people to exploit them; education and training

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9
Q

Economic growth: Capital

A

Acquiring capital is investment
More capital = production = growth
High quality capital = increased production

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10
Q

Economic growth: Rate of savings

A

Capital investment is financed by savings, so growth needs society to save consumption

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11
Q

Economic growth: Technological progress

A

Improving techniques for using scarce resources; greater output from same quantity of resources
Requires scientific skills of country, education, GDP % devoted to R&D

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12
Q

5 Benefits to Economic Growth

A

Improved standard of living
Stimulates employment
Increases gov’t revenue
Increases capital investment
Enhances business confidence

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13
Q

5 Benefits to Economic Growth: Improved standard of living

A

lowers rate of poverty with economic growth

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14
Q

5 Benefits to Economic Growth: Stimulates employment

A

Increased business requires more labourers increases employment rate

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15
Q

5 Benefits to Economic Growth: Increased gov’t revenue

A

Boosts tax revenues, increases spending for development

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16
Q

5 Benefits to Economic Growth: Increases capital investment

A

Demand and output encourages investment in new capital to sustain economic growth

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17
Q

5 Benefits to Economic Growth: Enhances business confidence

A

Company profits increase and confidence increases in business

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18
Q

3 Costs of Economic Growth

A

Depletes natural resources
Raises inflation rate
Increased environmental impacts

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19
Q

3 Costs of Economic Growth: Depletes natural resources

A

Renewable and non-renewable resources become depleted with economic growth

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20
Q

3 Costs of Economic Growth: Raise inflation rate

A

Economy grows too quickly, demand for goods/services rises too fast; prices increase

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21
Q

3 Costs of Economic Growth: Increase environmental impacts

A

Air, water, noise pollution; traffic congestion; negative effect on quality of life and growth rate

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22
Q

4 Real Estate indicators for economy

A

Housing starts
Real estate sales
Building permits issued
Vacancy / occupancy rates

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23
Q

4 Real Estate indicators for economy: Housing starts

A

Number of buildings under construction; positive correlation to economy
Multiplier effect: an increase in economic activity creates a chain reaction in spending and national income

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24
Q

4 Real Estate indicators for economy: Real estate sales

A

Sales positively correlated to economy and trigger multiplier effect, recirculated w/in economy

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25
4 Sources of Direct Sales Data
Gov't of AB Real estate sales databases CMHC Stats Can
26
4 Sources of Direct Sales Data: Gov't of AB
Stats for families, households/housing, population and demography, construction, society, community
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4 Sources of Direct Sales Data: Real estate sales databases
Data on sales and leases compiled by brokerages, real estate boards & associations
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4 Sources of Direct Sales Data: CMHC
Research and stats for residential sector (market reports, forecasts, surveys)
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4 Sources of Direct Sales Data: Stats Can
Publishes info on residential permits issued, starts, completions, house prices (new), non-res. construction
30
4 Real Estate indicators for economy: Building permits
Building permit (issued by municipal gov't granting permission to construct or alter property) Better predictor than housing starts but not as potent as them
31
4 Real Estate indicators for economy: Vacancy / occupancy rates
No. of avail units against total units or rental space vs. total space Residential props: Occupancy rate = units rented / total; expressed as % Commercial props: Vacancy rate = vacant units / total units (m^2 etc); expressed as %
32
4 Factors of production
Production and distribution of goods and services from economic resources: Land, labour, capital (fixed/working), entrepreneurship
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4 Factors of production: Land
Real estate component w/ natural resources
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4 Factors of production: Labour
The human input in production process
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4 Factors of production: Capital
Investment in capital goods for further production Fixed: machinery, plants, factories etc Working: inventory of finished and almost finished goods for consumers
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4 Factors of production: Entrepreneurship
Activities of people who organize land, labour, capital to produce good/service for a profit
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Resource markets
Facilitate exchange of four factors of production: land, labour, capital, entrep. Labour is most analyzed b/c 60% of this resource used in production
38
Canadian Economy
Mixed economy Private ownership and public enterprise w/ centralized economic planning and gov't regulation Private = profit (taxed) Public funded by private Citizens pay taxes on goods and services from both sectors
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Economic systems
Institutions & procedures that societies put in place to address issues from limited resources
40
Economic exchanges
Goods and services provided Money to complete transaction (from spending, revenue, payments, income, taxes)
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Government role in mixed economy
Regulator, lawmaker, consumer, producer of goods and services
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Simple economies
Exchanges occur through barter, trading
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Complex economy
Uses money as medium of exchange for transactions Canada's economy = price system instead of barter/exchange
44
Principles of supply and demand
Supply: amount of a goods/service market can offer at certain price; proportional price and quantity supplied (higher price means more production) = supply relationship Non-price determinants: costs of production, state of tech, producer expectations, # suppliers, gov't taxes and subsidies
45
Movements (supply line)
Movements occur due to quantity change from a change in price; movement occurs to new points alone the existing supply line called "changes in quantity supplied" Price increases = quantity supplied increases and vice versa Leftward shift in supply line reduces quantity supplied (S to S1) Rightward shift increases quantity (S to S2)
46
Shifts (supply line)
Occurs when changes in factors other than price: costs of production state of tech producer expectations # suppliers in market gov't taxes and subsidies
47
Demand
Quantity of a good or service at a specific price at period of time
48
Theory of demand
Price and quantity demanded in a market are inversely related (higher price, less purchases)
49
Demand relationship
Correlation btwn price and how much goods/services are demanded
50
Demand non-price determinants
Market size Consumer expectations Disposable income Tastes and preferences Price of similar products
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Movements along demand line
Movement occurs if price changes leading to change in quantity Demand remains consistent w/ demand relationship
52
Shifts in demand line
Occurs when changes in non-price factor Leftward shift reduces quantity (D to D2) Righward shift increases quantity (D to D1)
53
Market equilibrium
State of balance between supply and demand (lines intersect in x) Price point = accepted by both consumers and producers (equilibrium price) Quantity of goods provided = same as demand
54
Market surplus
Quantity supplied exceeds quantity demanded at set price (sales happen) Price decrease = quantity decreases = demand increases = equilibrium
55
Market shortage
Quantity demanded exceeds supply at set price (price will be lower than equilibrium) Sellers raise prices to gain equilibrium
56
Market indicators
Measuring economic activity to assess supply and demand through numbers; analyze economic indicators
57
Business indicators
Businesses provide supply of goods and services to fulfill demand; measures include: GDP Gross national product (GNP) Manufacturing Inventories Capacity utilization rate
58
GDP
Reflects state and health of country's economy and standard of living Domestic levels of production Monetary value of all goods/services in a period calculated annually as a % All consumer, gov't, business spending plus exports minus imports
59
GNP
Total economical output Value of finished goods and services produced by citizens and enterprises globally Does not include foreign residents income GNP = GDP + net income abroad - net income to foreign countries
60
Manufacturing activity
21 industry groups Plants, factories, homes, mills New orders, shipments, inventories New orders are leading economic indicator b/c = positive changes in production (decline is opposite)
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Inventories
Maintain inventory levels to meet unexpected product demand Rising/falling inventories indicate future direction of output and employment
62
Capacity utilization rate
rate that output levels by a business are met or used Is a percent about how close to max production capacity firms are Stats can uses construction, manufacturing, oil/gas extraction for reports
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Consumer indicators
Retail sales Consumer confidence Consumer price index
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Retail sales
Consumer goods/services to public Typically seasonal trends (sales increase in Sept; peak Dec; decline Jan/Feb) Swings reflected in GNP
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Consumer confidence
Degree of optimism about state of economy and personal finances Conference board of Canada measures this (can buy subscription)
66
Consumer price index
Economic indicator measures change in prices Compare cost of fixed basket of goods/services = inflation or deflation Compensate workers by adjusting wage for inflation = Indexation
67
CPI uses
Commercial tenancy agreements to increase rent Index pensions, social security, child support Interest payments, bonds Produced monthly by stats can
68
Changes in economic activity
Seasonal fluctuations: short-term in a year; winter slower etc. Business cycles: periodic up/down in economics over time; distinct stages Secular trends: long-term movement of economics that is not seasonal/cyclical (baby boom, revolutions etc)
69
Types of real estate markets
Balanced, buyers, sellers
70
Balanced market
Available properties = potential buyers Demand = supply Property prices stable Financing rates do not affect market Lots to choose from Sale happens quickly
71
Buyer's market
Properties are more than number of buyers Prices lowered More negotiating Local economy contracting Fewer buyers avail. Properties on sale longer Larger inventory
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Seller's market
Market demand higher than supply Buyer's compete for properties Sell quickly Prices increase Buyers increase Small inventory Short turnaround Affordable mortgage rates
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Characteristics of real estate
Local in nature; considered separate (cities etc) Slow to respond to changes in supply/demand (can change during building, too) Not standard marketing method Private transactions
74
Physical characteristics of real estate
Unique: each parcel of land differs (non-homogeneous) Fixed: properties/land Durable: use may change but land exists Scarce: land is finite, bylaws limit use
75
Supply & demand in real estate
Demographics: population stats (baby boomers needed bigger houses) Employment & wages: positively correlated; GDP increases, real estate good. Interest rates: fall = higher demand = prices increase; vice versa Mortgage volume: high volumes of lending = confidence and desirability of real estate (when confidence declines, lenders become conservative) Building activity: increased demand causes increased building, due to lag = oversupply after demand dissipates
76
Government policies (demand)
Residential: social housing, rent supps, capital grants FTHBP Rate protection etc Commercial/Rural: financing programs for start, develop, grow operations
77
Business cycles
Repeated sequence of economic expansion, decline, recovery (economic cycle) Reflected in production, employment, profits, prices, wages Expansion = prosperity until peak Contraction = recession to trough Recovery and start again
78
Recession
Two consecutive quarters (6 months) of negative GDP; can develop into depression
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Real estate market cycle
Expansion, peak, contraction, trough, recession, recovery, peak recession... Affected by geography and property type with related factors for them (demand for retail = pop growth and increased wages)
80
Market bubble
Created when the price of real estate increases faster than rate of inflation, income, and economic growth Temporary Characterized by: increased prices, lots of construction, lots of lending, low interest rates
81
Bubble burst
Houses purchased at inflated prices causes overconfidence in market; number buyers decreases; interest rates rise; home prices plummet, bubble bursts Effects: left with overvalued asset; economic activity decreases = unemployment rises
82
Market corrections
Downturn in demand for and increasing supply of real estate; necessary for stability of industry

Fundamentals of real estate (26 decks)

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