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182 Cards in this Set
- Front
- Back
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§1031 transaction
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A sales transaction in which sales proceeds are reinvested in a replacement like-kind property, the profits of which are untaxed.
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10-year Treasury Note
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A leading indicator of the direction of future Freddie Mac rates. The 10-year Treasury Note is influenced by worldwide demand for the dollar and anticipated future domestic inflation.
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1-year Treasury Bill
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One of several indices referenced by lenders to adjust the rate of an adjustable rate mortgage. This index is one of the most volatile treasury bills.
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80-10-10 financing
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A home loan which allows the seller to carry 10% of the price along with the buyer's 10% down payment.
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91-Day Treasury Bill
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The rate used by sellers to impute and report interest when a seller is not paid interest on their §1031 monies.
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absentee buyers
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A group composed of speculators, buy-to-let investors and renovation contractors.
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adjustable rate mortgage (ARM)
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A variable interest rate note, often starting out with an introductory teaser rate, only to reset at a much higher rate in a few months or years based on a particular index.
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adjusted gross income (AGI)
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The total of the taxpayer's reportable income and losses from all three income categories.
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American Dream policy
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The government's push to increase the homeownership rate from the historical 64% to 70%.
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applicable federal rate (AFR)
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Rates set by the Internal Revenue Service for carryback sellers to impute and report income at the minimum interest when the note rate on the carryback debt is a lesser rate.
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appreciable asset
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A collectible, such as real estate. The value of this asset may increase with time.
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appraisal
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An individual's opinion of a property's value on a specific date, documented in an appraisal report.
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asset
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A valuable item which can be converted to cash by its owner.
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asset deflation
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The increase of the purchasing power of money in relation to asset prices, such as real estate and stocks.
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asset price inflation
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A rise in the price of assets, such as stocks, bonds and real estate.
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Baby Boomers
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The post-WWII generation responsible for a sharp increase in the U.S. population. Their collective activities have a sizeable effect on the market.
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balance sheet
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An itemized, dollar-value presentation for setting an individual's net worth by subtracting debt obligations (liabilities) from asset values.
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beige book
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Written reports compiled by the Manager of the System Open Market Account detailing the current and prospective economic environment each bank district is encountering.
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bona fide purchaser (BFP)
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A buyer who purchases a property for valuable consideration in good faith without notice or knowledge of pre-existing encumbrances or conditions affecting their right to full ownership.
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building envelope
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The doors, windows, foundation, roof and walls of a property. Sealing these areas can dramatically reduce the cost of cooling and heating the property.
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bumpy plateau
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A recovery period characterized by a long-term pattern of recurring short-term increases followed by negating short-term decreases in home sales volume and pricing, producing a recovery trend with little upward movement.
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buy phase
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The ideal moment to buy property, characterized by low prices, low interest rates and few willing buyers.
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buy-to-let investment
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Long-term income property investment.
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capitalization (cap) rate
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The annual rate of return on invested capital based on net operating income (NOI) produced by the operations of an income property. The cap rate is calculated by dividing the NOI by the property’s price.
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cash is king
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An expression referring to the importance of cash flow during recessionary periods.
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casitas/granny flats
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Attached, freestanding, or over-the-garage apartments that have no direct access to the main house.
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collateral
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Tangible assets securing a loan which are worth more than the principal balance of the loan.
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commodity
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A marketable good or service.
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community banks
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Small and local banks not tied to the "too big to fail" Wall Street banks.
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competitive advantage
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Increasingly drastic lending measures motivated by the desire for ever greater earnings and strategic advantage over one's rivals.
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construction starts
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Building permits issued before builders can begin construction.
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consumer confidence
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An economic indicator measuring the current level of optimism consumers feel about their personal financial situation and the present state of the broader economy.
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Consumer Price Index (CPI)
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The CPI measures and tracks the rate of consumer inflation. This is presented as an index of fluctuations in the general price of a wide selection of consumable products -- goods and services.
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consumer price inflation
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An increase over one year in the price level of a basket of consumer goods and services marketed in the economy.
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Continental
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An early form of currency issued by congress after the start of the Revolutionary War.
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contractionary monetary policy
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An effort to decrease the amount of money in circulation.
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Cost of Funds Index
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One of several indices referenced by lenders in adjustable rate mortgage notes to adjust the note's interest rate. This index is one of the steadiest.
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cramdown
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The reduction by forgiveness or bankruptcy order of the principal balance of a loan when the debt exceeds the value of the secured property.
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credit score
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A numerical representation of a borrower's creditworthiness, based on credit information obtained by the rating bureau.
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creditworthiness
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An individual's ability to borrow money, determined by their present income, wealth and previous debt payment history.
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dead cat bounce
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A brief rise in home prices or sales caused by artificial or temporary market factors; not indicative of a true recovery.
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debt overhang
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Excess mortgage debt on a negative equity property.
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debt-to-income ratio (DTI)
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Percentage of monthly gross income that goes towards paying debt.
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discount rate
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The interest rate the Federal Reserve charges banks and thrifts who borrow funds directly from the Fed to maintain reserve requirements.
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disequilibrium
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An extreme imbalance in supply and demand which prevents the market form reaching equilibrium.
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dis-saving
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The act of cashing in savings and liquidating assets to spend on goods and services.
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diversification
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Varying the types and areas of investment in a portfolio to mitigate risk.
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Dodd-Frank Wall Street Reform and Consumer Protection Act
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A 2010 enactment of significant changes to U.S. financial regulation in reponses to the 2007 financial crisis.
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double-end
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When the seller's agent receives the entire fee in the real estate transaction, there being no buyer's agent for fee splitting.
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earned income
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Wages received with respect to employment, including wages, salary, tips, commissions and bonuses.
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easy money
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When there is too much cash in circulation, rectified by the Federal Reserve increasing short-term interest rates.
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emigration
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The act of leaving a country or state for another.
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employer of last resort
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The U.S. government as the employer of those who cannot find work in the private sector.
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energy efficiency
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Using building materials, appliances or other methods to reduce the amount of energy used by the homebuyer , thereby reducing their energy costs.
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entrepreneurial spirit
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Individuals exhibiting creativity and ingenuity. Willing to adopt new, innovative techniques to succeed.
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exchange rate
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The fluctuating rate at which one currency is converted to another, such as for the purpose of purchasing in a foreign market.
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expansionary monetary policy
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An effort to increase the amount of money in circulation.
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fair market value (FMV)
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The price a reasonable, unpressured buyer would pay for property on the open market.
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Fannie Mae
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A government-sponsored buying, owning and selling mortgages in the secondary mortgage market, called the Federal National Mortgage Association (FNMA).
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federal funds
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Overnight funds lent to banks with insufficient reserves by the Federal Reserve and other banks with excess reserves.
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Federal Housing Administration (FHA)-insured mortgage
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A mortgage originated by a lender and insured by the FHA, characterized by a small down payment requirement, high loan-to-value (LTV) ratio and high mortgage insurance premiums (MIPs), typically made to first-time homebuyers.
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Federal Open Market Committee (FOMC)
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Consists of five rotating Federal Reserve District Bank presidents and the seven members of the Board of Governors. The FOMC discusses future monetary policy and establishes goals to meet those policies.
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Federal Reserve
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The federal banking system of the United States managed by a central board of governors (Federal Reserve Board) and comprising a bank in each of twelve geographical districts with broad powers for setting monetary policy to control the level of price inflation and employment, primarily accomplished through the setting of short-term interest rates.
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Federal Reserve Board of Governors
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Consisting of seven members who each serve one fourteen year term, this governmental aspect of the Federal Reserve decides upon future monetary policy.
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Federal Reserve District Bank
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The 12 branches of the "central" bank.
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fiat money
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A form of currency controlled by a central bank and backed by the national government. It has no direct tie to an underlying commodity or other store of wealth.
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financial accelerator
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The cyclical phenomenon of increasingly larger loan amounts based on increasingly inflated prices of the same collateral.
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financial atrophy
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The continuing inability to qualify for purchase-assist financing due to outstanding consumer debt.
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financial crisis
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An economic downturn resulting from the failure of banking and government agencies to regulate and adjust to developing market conditions.
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first-time homebuyer
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A buyer of property who has not previously owned real estate. Typically aged 25-34.
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flipping
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Buying and quickly reselling a property to obtain a large profit, the basis of speculation.
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forbearance agreement
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An agreement that the lender will temporarily reduce monthly mortgage payments for the homeowner at risk of default, without altering the original loan terms.
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foreign investor
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An overseas investor who purchases dollar-denominated assets in the United States.
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Free Banking Era
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1837-1862. No central banking system existed during this time. States chartered their own banks and held their own reserves.
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full employment
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When employees receive income for full, 40-hour work weeks.
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Generation Jones
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The younger half of the Baby Boomers, named for their desire to "keep up with the Joneses." Also called the Joneses for short.
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going negative
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The Federal Reserve's charging of interest on the excess reserves of lenders, stimulating lending activity.
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Great Confluence
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The convergence of retiring Baby Boomers and Generation Y on the same urban real estate.
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greater fool theory
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The erroneous belief that an ever-increasing number of buyers will always be willing to pay ever-increasing prices for real estate.
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Greenspan Put
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The practice of lowering the Federal Funds Rate to encourage investing during recessionary periods, with an implicit guarantee of continuing interest rate stimulus to keep profits up. Implemented by Fed Chairman Greenspan from 1987 to 2000.
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gross domestic product (GDP)
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The market value of all goods and services produced within a county calculated over a set period of time.
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gross revenue multiplier (GRM)
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Sale price divided by annual rents. A rule of thumb used to quickly evaluate the price of a property.
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hit-and-run buyers
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Flippers who purchase real estate with the intent to quickly resell it at a profit produced by market momentum, not fundamentals.
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hold period
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A period in which investors hold onto their cash and property, which occurs twice during a real estate cycle: after a purchase in the buy phase and after a sale in the sell phase.
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hold phase
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A period in which investors hold onto their cash and property, which occurs twice during a real estate cycle: after a purchase in the buy phase and after a sale in the sell phase.
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home energy score
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A rating system established by the Department of Energy quantifying the energy performance of a home.
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home equity line of credit (HELOC)
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A mortgage loan enabling a homeowner to borrow against their home's equity, as though the equity was an ATM.
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homeowner vacancy rate
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The percentage of unoccupied homeowner housing units.
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homeownership gap
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The portion of homeowners with a negative equity whose status is economically that of a tenant in possession due to the principal on their mortgage exceeding the property's value.
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household formation
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Individuals who acquire their own property, such as adult children leaving parents' households or singles leaving shared housing.
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housing wage
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The hourly wage needed for a worker to qualify for an average-priced residence.
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illiquid asset
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An asset that cannot be converted into cash quickly without cost.
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implicit rent
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The dollar value of the use of a property by the owner.
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income approach
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One of three methods of the appraisal process applied to income producing property to develop the appraiser's opinion of value.
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individual taxpayer identification number (ITIN)
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A nine digit, tax processing number issued by the Internal Revenue Service to individuals who don't have a social security number.
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inflation
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The price change in consumer goods and services, stated in the consumer price index (CPI) as a figure which is reported as a percentage change over one year ago.
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installment sale
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Financing provided by a seller who extends credit to the buyer for future periodic payments of a portion of the price paid for real estate, also known as carryback financing.
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installment sales contract
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Commonly called contract of sale or land contract. Purchase of real estate wherein the purchase price is paid in installments over a long period of time, title is retained by seller, and upon default by buyer (vendee) the payments may be forfeited.
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inventory
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Properties available on the market for sale or lease published through the multiple listing service (MLS).
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invested capital
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The total amount of case and mortgage principal an owner has used to acquire and improve a property.
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investor
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A purchaser who holds a property long-term on a buy-to-let basis as an income producing investment. Contrast with a speculator who buys a property to flip it for profit on a sale, rather than earn annual income from continued ownership.
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John Maynard Keynes
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An economist well-known for his stance that governments should smooth out the effects of expansion and contraction in the business cycle through fiscal and monetary policy.
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leveraging
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A double-edged sword of possible greater returns or potential total loss. In real estate, leveraging is the concept that a lien either increases the owner's risk they will lose the property (and their investment) to foreclose or increases the return on their investment.
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liability
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A financial debt or obligation owed to others.
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limited liability company
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An entity formed for the purpose of holding title and operating real estate for a group of investors. The members of an LLC are not liable for the LLC's debts and obligations.
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liquidity trap
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A condition in which injections of cash into the banking system by the Federal Reserve fail to lower interest rates or stimulate economic growth. In the instance of California's current crisis, cheap cash is sitting in lenders' reserves but is not being lent to prospective buyers.
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loan-to-value ratio (LTV)
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A ratio stating the outstanding mortgage balance as a percentage of the mortgaged property's fair market value. The degree of leverage.
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long-term rate
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An interest rate fixed for the duration of the loan.
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luxury vs. necessity
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Housing as a consumer good that enhances one's social status versus housing as a solution to one's basic need for shelter.
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mark-to-management
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A method of valuing loans set by bank management.
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mark-to-market
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A method of valuing loans based on the market price of the properties securing the mortgages.
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mean price trendline
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A reflection of consumer inflation, to which property prices cyclically return.
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median age
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The midway point between the older half of a population and the younger half.
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medicare tax
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Under the 2013 health care law, this is an additional tax on earned income exceeding a threshold amount.
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momentum traders
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Buyers relying on the emotion of frenzied market participants, rather than property price inflation, to profit from buying and reselling property.
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monetarist economic view
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An economic view which holds it is the role of the government to control the amount of money in circulation, not a commodity or other currency. In the U.S., this is performed by the Federal Reserve (the Fed) and the U.S. Treasury.
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monetary policy
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The Federal Reserve's use of short-term interest rates and other infusions and withdrawals of dollars in circulation to control pricing and employment in the economy.
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money multiplier effect
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The rapid expansion of the money supply dictated by lenders' ability to lend. It is calculated by dividing the total deposits held by lenders by the reserve requirement.
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moral risk
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The existence of an overly permissive attitude towards debt which leads to a greater risk of default by other debtors.
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mortgage-backed bond (MBB)
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An asset-backed security representing the bond holder's claim on the cash flow received on mortgage obligations.
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negative equity
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The condition of a property owner owing more on a mortgage than the current fair market value of the encumbered property.
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net income multiplier (NIM)
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The property's price as a multiple of the net operating income (NOI).
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net investment income
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Pre-tax income received from investment assets. For real estate investors, this includes income, profits and losses from the operations and sales of rental property, interest income and profits on land held for resale.
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note rate
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The interest rate agreed to between the homebuyer and the lender on the promissory note. Contrast with real interest rate.
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Notice of Default (NOD)
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The notice filed to begin the nonjudicial foreclosure process. Generally, the NOD is filed following three or more months of delinquent mortgage payments.
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operating costs
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The itemized list of total annual costs projected to maintain and operate a property for one year.
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opportunity cost
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The cost of an action that is forgone in choosing to take an alternative action, usually a consideration when making one investment over another.
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par rate
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The lender's base interest rate without any positive or negative adjustments for profit.
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per capita income
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A measure of average income per person in a population center.
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present value
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Future rental net operating income discounted at a given rate of return minus the effects of inflation.
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price appreciation
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Any increase beyond the rate of consumer inflation above the price paid for property experienced by the owner on its resale.
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price tier
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As opposed to the median price figure, the movement of the market is best understood through an analysis of the low-, mid- and high-tiers.
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price-to-earnings (P/E) ratio
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The market value per share divided by earnings per share. This is a quick way to measure the price level of the stock market or an individual stock.
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prime offer rate
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A base rate used by banks to price short-term business loans and home equity lines of credit, set 3% above the federal funds rate.
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prime rate
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A base rate used by banks to price short-term business loans, set 3% above the federal funds rate.
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principal residence profit exclusion
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An exclusion on profit from a home sale from income taxes up to a $250,000 per owner who qualifies for the exemption.
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property appreciation
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The increase in property prices beyond the rate of inflation.
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purchasing power
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A homebuyer's ability to purchase property funded by a purchase-assist mortgage based on 31% of their gross income for mortgage payments at current interest rates.
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put option
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The provision in all trust deeds which, in tandem with anti-deficiency laws, grants an owner-occupant of a one-to-four unit residential property under a purchase-assist mortgage the right to defulat and force the lender to buy the property through foreclosure for the remaining loan amount.
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qualified mortgage (QM)
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A home mortgage which meets ability-to-repay rules under the Truth in Lending Act (TILA).
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qualified residential mortgage (QRM)
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A home loan which meets low-risk criteria, exempting it from the originating lender's ownership of 5% under the risk retention rule. QRMs are expected to meet ability-to-repay requirements, including the maximum debt-to-income ratio of 43%.
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quantitative easing
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The purchase of government mortgage backed bonds by the Federal Reserve to drive down interest rates and increase liquidity.
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real demand
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The demand of end-user buyer-occupants in the real estate market.
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real estate investment trust (REIT)
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An entity issuing securities held by investors and traded on the stock market, holding title to income-generating property, trust deeds and treasury bonds.
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real rate of earnings
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The desired fixed rate of return on the investment in excess of the future rate of inflation.
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recession
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An economic event triggered and controlled by the Federal Reserve to maintain the sustainability of economic growth.
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rental vacancy rate
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The percentage of unoccupied rental housing units.
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renters by necessity
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Households for whom traditional ownership is not economically possible.
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rentier
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The class of earners whose income is earned passively, generated from owned tangible and intangible assets rather than through their labor.
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reserve requirement
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Laws requiring lenders and other depository institutions to hold a fraction of their deposits in reserve in the form of secure assets.
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return on investment
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A measure of annual income or profits on a sale in relation to capital invested.
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risk premium rate
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The lender's safety net against borrower default. The risk premium rate varies according to the homebuyer's qualifications and the security of the property.
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risk tolerance
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The amount of investment risk an investor is willing to accept.
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savings rate
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The percentage of an individual's monthly disposable income which is not spent.
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securitization
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The process of Wall Street bankers breaking up mortgage pools into mortgage-backed bonds and selling these bonds to various banks and individual investors.
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sell phase
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The ideal moment to sell property, characterized by rising prices, monthly decreases in sales volume and a yield spread falling for at least six months.
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seniors
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Those over the age of 65.
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shadow inventory
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The inventory of properties whose eminent release onto the market (e.g., REOs, foreclosures, speculator holdings) impacts the stabilization of real estate prices and volume.
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shareowners
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Investors in real estate investment trusts (REITs) and other securities. Shareowners are subject to the gains and losses experienced by the company issuing the security.
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short-term rate
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A variable interest rate which changes often, driven by Federal Reserve actions to keep inflation and deflation in check.
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skin in the game
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A risk management measure of a purchaser's stake in an investment, such as a homebuyer's down payment on a home purchase.
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statement of financial position
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A balance sheet prepared by a homeowner which lists the dollar amounts of all the homeowner's assets of value and liabilities.
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sticky pricing
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A seller's irrational reliance on past home pricing as a basis for setting current pricing.
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strategic default
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The intentional default by the owner of an encumbered property on a mortgage, forcing the lender to foreclose and acquire the property in satisfaction of the mortgage debt. Also, the owner's exercise of a put option under trust deed provisions.
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subprime borrower
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A borrower who poses a higher risk of not repaying a loan as agreed.
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subsidies
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The government support of a particular entity or activity. For homebuyers, these come in the form of tax credits.
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syndication
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When a group of investors form a limited liability company to fund the purchase price and carrying costs of owning real estate.
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teaser rate
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A temporary, low introductory interest rate found in adjustable rate mortgages.
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tenants-by-foreclosure
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Former homeowners who were forced out of their homes by foreclosure in the wake of the 2008 recession, but in need of housing and now forced to rent.
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tranches
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The division based on priorities of Investment pools of mortgage-backed bonds (MBB) creating various levels of risk, reward and rate of maturity.
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Treasury Bills (T Bills)
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Government securitized debt instruments. T-bills are sold to the public, member banks and other financial institutions.
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trickle-down economics
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The economic theory suggesting that an increase in the strength of the wealthy leads to an increase in the well-being of lower classes.
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turnover rate
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The percentage of households relocating each year.
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underemployment
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When hours worked each week are cut, resulting in a lower-than-normal income.
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undocumented immigrant
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An individual who enters a country without the approval of that country.
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unemployment
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When an employee loses their job, resulting in no income.
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universal homeownership
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The idea that everyone can and should be able to own a home. Similar to the American Dream policy.
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vicious economic cycle
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The economic climate in which growth slows after a boom, causing property owners to sell at reduced prices (referred to as a buyer's market).
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yield spread
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The difference between the 10-year Treasury Note rate and the 3-month Treasury Bill rate, forecasting economic conditions one year forward.
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zero ability to pay (ZAP)
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The financial situation where a consumer's debt payments exceed net income.
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zero lower bound interest rates
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Economic conditions characterized by a very low nominal interest rate. As the interest rate is at or near zero, the Federal Reserve (the Fed) cannot lower it further to stimulate the economy without going negative.
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zoning
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Building and land use restrictions enacted by local policy makers to ensure a consistent flow of new improvements to meet the demand of population growth.
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