• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/85

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

85 Cards in this Set

  • Front
  • Back
The ability of a city or region to produce a commodity or service that can bring in money from outside its area is called its
economic base ( The ability of a region to export goods and services to other regions and receive money in return)
Industries that produce goods and services for export are called
base, export or primary industries
An industry that produces goods or service FOR EXPORT from the region is called a
base industry
An industry that produces goods and services to sell to sell to LOCAL residents are
service industry. Also called filler or secondary industries. This category includes local school systems, supermarkets, doctors, dentists, drugstores and real estate agents.
Because land is immovable, the existence of BASE INDUSTRIES is _______________ _____________ to maintaining local real estate values.
ABSOLUTELY ESSENTIAL.

* Unless a region or city exports, it will die economically, and the value of local real estate will fall. i.e. abandoned mining towns
Before the discovery of mineral riches, land was often worth
a few dollars an acre for grazing purposes
As a rule, for each additional person employed in a base industry (exportation),
another two persons will be employed in local service industries. (SEE PAGE 437)

i.e. If an electronics firm moves into a community and creates 100 new BASE INDUSTRY jobs, opportunities will be created for another 200 persons in jobs such as retail store clerks, restaurant services, gas station operators, gardeners, bankers, doctors, members of local government, etc.
Economists agree on three factors that establish criteria for home sales:
1.) job growth
2.) low interest rates
3.) rising home prices.
100 base industry jobs created by the electronics firm result in 200 service jobs, for a total of 300 new job opportunities in the community. If every 3 jobs require two households (more than one person working in some families) and each household averages 2.9 persons, then 300 jobs will provide income for 200 households containing a total of
580 persons. From the standpoint of local government, 580 more people must be supplied with schools, parks, streets, libraries, water, sewage treatment, and police and fire protection.

Unfortunately, the opposite is true.
Job growth not only creates demand for new homes but also provides
the opportunity to "move up" to better housing as new people are hired and/or one's job improves.

If an industry relocates to another area, the opposite happens.
Low interest rates, particularly in the past few years, have enabled
more people to qualify for home loans.
Low interest rates can also raise prices on existing homes, since
the buyer can afford to pay for a more expensive home.

Increasing interest rates have the opposite effect.
A rule of thumb is the 6.5 month rule. If a given market has 6.5 months of new housing inventory, prices go ________ or _________. If the housing inventory is less than 6.5 months, prices increase as demand outspaces supply.
flat or down.
There is no way to accurately anticipate housing markets,
whether good or bad
In a growing economy, there is more demand for housing as an
investment.
Investors with capital to invest have often looked into residential real estate as a hedge(protection against financial loss) against inflation and as an additional source of income.
When investors create a high demand, it often results in a
"bubble" in housing prices.
This HOUSING BUBBLE is an artificially high price in the market, as it is not a real estate increase in demand;
it is investors who have created another market.
When this market declines (there are no new investors or "greater fools"), it is precipitous( dangerously steep) decline.
** Investors do no reflect a real estate market increase; they are mere speculators.
An increase in supply causing a glut of houses will cause prices to __________ slightly
reduce
A decrease in demand would cause prices to shift
downwards.
An Age Distribution chart of the US population shows that people are living longer and
1.) holding on to their houses longer or
2.) moving into housing created specially for senior citizens
*In either case, it increases the housing demand
The famed WWII and postwar "baby boom" started in
1946 and lasted until 1960. In 1960, the number of births began to decline and continued to decline each subsequent year through 1978.
In 1986, a tax bill was passed by Congress and signed by the president that made drastic changes in the income tax treatment of real estate. The laws were revised with the ___________________.
1997 Taxpayer Relief Act
The 1986 Taxpayer Relief Law repealed
the long-term capital gain exclusion, repealed accelerated depreciation on real estate, extended minimum depreciation periods from 19 to 27.5 years for residential and to 39 years fir commercial property, and placed tight limits on real estate less attractive from a tax standpoint
Since tax treatment is one of the deciding factors in buying investment real estate,
these tax changes greatly influence what people can and will pay for a property.
In the 1986 tax bill is a tax credit allowed for the rehabilitation of old and historic structures. The intent of Congress is to
induce people to renovate rather than tear down older structures.

*There is also a tax credit for those who will own and operate low-income rental housing.
The 1997 Taxpayer Relief Act reinstated
capital gains and gave huge exclusions from income for sales of personal residences. This should greatly increase commercial real estate activity (to take advantage of lower tax rates) and allow homeowners to trade up or down without penalty, so residential sales are also positively affected.
Many young homebuyers have determined that it is cheap or cheaper to buy a new home than to pay rent, with the tax benefits gained in equity and similar monthly payments. This in turn, creates
income for real estate agents, home builders, contractors, title companies, attorneys, interior decorators, etc stirring significant economic growth and prosperity.
fiscal policy
Carried out by the federal government, its use of taxing and spending power to help influence the economy, establishes government programs and increases or decreases taxation to adjust its income.
If the government increases taxes,
it reduces private income and the consumer cannot spend as much (it lowers the consumer's disposal income).
Therefore, the consumer's money cannot be spread throughout the economy.
The economy, then, has to rely on the government infusion of money into the economy to create prosperity through government programs. This creates
constant political struggle over government's fiscal policy.

The government, unlike homeowners and consumers, can change its income streams by passing new laws.
History has shown us that keeping more money in consumers' pockets (through lower taxes) tends to
lead to a more prosperous economy at the grassroots level.
Higher taxes and govt spending to stimulate the economy give Congress, not consumers, control of the outflow. This is why politics is at the root of the government's fiscal policy.
The Federal Reserve Board (The governing board of the nation's central bank, through the Federal Reserve Banks)
has the ability through monetary policy, to create and destroy money. This is done by any of the following mechanisms:
1.) open-market purchases and sales of Treasury securities
2.) changes in the discount rate charged to banks, and
3.) changes in the reserve requirements of banks.

Omitting a detailed explanation of each of these and going directly to the point: the Federal Reserve can create money.
This is useful because in an economy that grows 3% a year,
a 3% increase in the money supply is necessary to keep prices from falling.
However, since the Federal Reserve can create money, there is the temptation to
print more money than needed for economic growth because this new money can be used to buy back Treasury securities that were created to fund the federal deficit.
The short-term result of such purchases is to drop interest rates, which benefits
the government, businesses, and housing. Unfortunately, the longer-run effect (beyond two years) is more inflation as there is now more money in circulation without a corresponding increase in goods and services to buy, and the value of the dollar decreases.
When inflation is apparent, savers become wise and respond by
buying equity assets such as real estate to hedge against further inflation and by raising the rate of interest they will accept to compensate for inflation. Thus, any benefits of creating extra money by the Federal Reserve are lost in the long term.
A very important influence on real estate activity and prices in the US has been the
secondary mortgage market.
Before the 1970s, home loan money came mostly from
savings and loans, mutual savings banks, commercial banks, and life insurance companies. This tended to keep a lid on real estate prices.
With the advent (notable person, thing or event) of the Federal National Mortgage Association, the Government National Mortgage Association, the Federal Home Loan Mortgage Corporation, and other secondary mortgage market operators
raising additional funds through mortgage backed securities. Newly emerging private secondary market provides a place to sell a huge amount of mortgages that a lender does not want to hold until maturity.
The four concepts of inflation are
-cost-push inflation,
-demand-pull inflation,
-monetary inflation,
- real-cost inflation
The increasing cost of inputs necessary to manufacture a product or offer a service results in what is called
Cost inflation (Higher prices due to increased costs of labor and supplies.)

i.e. an automobile manufacturer increases the price of cars because labor and materials cost more
When buyers bid against each other to buy something that has been offered for sale, _________________ results.
demand-pull inflation (higher prices due to buyers bidding against each other.

i.e. Recently, the demand for corn has increased because we now use it for fuel additives. The farmers get higher offers for their product because more people are demanding it.
** This type of inflation has little to do with the actual cost of producing the particular goods or services being sought. Instead, it reflects what buyers feel they would have to pay elsewhere for the same thing.
Monetary inflation
results from the creation of excessive amounts of money by government.

No parallel increase in goods and services to be purchased with that money
**This monetary inflation may cause a temporary economic stimulus by placing more money in people's hands but the ultimate result may be a reduction in the purchasing power of that money if the rate of monetary inflation exceeds increased supply of goods and services.
Real-cost inflation
is inflation caused by the increased effort necessary to produce the same quantity of a good or service.

- another definition: Higher prices due to greater effort needed to produce the same product today versus several years ago.
The first factor in attracting the buying of homes was the low __________ cost of interest.
real (inflation-adjusted)
The housing market is an ______________ market.
owner-occupant.

Owner-occupants receive the benefits of occupancy and the psychological value of owning their own homes.
If you plan to develop or invest in real estate, it is very helpful to watch
Federal Reserve statistics so as to better anticipate changes in interest rates.
Although the marketplace is the ultimate decider of interest rates, the actions of the Federal Reserve Board can and do provide a powerful push on rates.
To understand the Federal Reserve Board, you need to know that the Board has four objectives for the American economy:
1.) high employment
2.) Stable prices
3.) Steady growth in the nation's productive capacity
4.) a stable foreign exchange value for the dollar
Week-to-week changes in the results of Federal Reserve monetary policy can be found each Friday in
The Wall Street Journal under "Federal Reserve Data"
Monetary base
This shows the legal reserves of banks at the Federal Reserve plus cash in the hands of the public
If monetary base grows faster than the real (inflation-adjusted) rate of growth of the country's gross domestic product (GDP),
One can assume that the nation's money supply will soon be expanding at a greater rate than the real gross domestic product. This will cause interest rates to fall and economic growth to be stimulated.
Two years down the road it may turn to inflation, depending on how the Fed deals with credit standards.
There are two likely outcome scenarios pending. The first being The Federal Reserve Board must decide whether to expand the money supply in order to buy back the federal deficit which is known as
Monetize the debt. (The creation of money by the Federal Reserve to purchase Treasury securities)
The second scenario is that Congress will bring about a meaningful reduction in the size of the federal deficit. This would reduce
The need of the US Treasury to compete with businesses and home buyers for available loan funds.

With less competition, interest rates will stay low and perhaps fall even lower. This will attract more loan funds. The cost of this attractive scenario is overall fiscal belt tightening: recipients of government spending programs would have to receive less.
What was the effect of the Reagan years on inflation? What are the good points? The bad points?
The Reagan years slowed inflation and they lowered interest rates, making housing more affordable. They also resulted in a loss of jobs as the economy was restructured.
What was the intent of government in passing the Equal Credit Opportunity Act?
The purpose of the Equal Credit Opportunity Act is to require lenders to make credit available without regard to sex or marital status.
Did the the years Bill Clinton was in office result in a marked change from the years George W. Bush was in office? Why or why not?
Clinton attempted to avoid supply-side economics, but the effect did not produce a marked change.
What are the advantage and disadvantage of monetizing the federal debt?
The advantage is that in the short-run interest rates can be pushed down, which gives the economy a boost. The disadvantage is that inflation will result.
If money supply grows slower than real gross national product, would the result be rising prices or falling prices?
Rising prices
The real estate brokerage business is an example of a
secondary industry
The existence of base industry
is essential to the economic health of a community.
The Hartford Manufacturing Company, which was the largest employer in the city of Westview, recently closes its plant in that city. This will probably result in
a slow-down in construction of new homes
Generally, for every job created by a base industry, there will be created in service industries approximately
one job for every two base jobs
When there is a sudden increase in the DEMAND for housing in a community, the price of existing housing will
rise rapidly, then fall slightly as supply catches up with demand.
The increasing cost of inputs necessary to manufacture a product or offer a service results in what is called
cost-push inflation
Real estate values are NOT effected by the federal government's
monetary policies.
Cash flow refers to the number of dollars remaining each year after you rents and pay operating expenses and mortgage payments.
Federal tax laws have traditionally allowed owners of investment properties to deduct maintenance costs, operating costs, ad valorem taxes EXCEPT for
depreciation on land.
Economists agree that there are three factors that establish criteria for home sales:
1.)job growth
2.) low interest rates
3.) rising home prices.
Which has the greatest effect upon the interest rate an individual must pay for a real estate mortgage loan?
FEDERAL governmental borrowing has the greatest effect upon what an individual must pay for real estate mortgage loan.

* keyword: FEDERAL
In order to keep prices from falling in an economy that is growing at 4% per year, which of the following adjustments in the money supply is necessary?
4% increase. An INCREASE IN THE MONEY SUPPLY EQUAL TO THE RATE OF GROWTH is needed to keep prices from falling in a growing economy.
When a government prints more money than is needed for economic growth, the result is a
short-term drop in interest rates.

The printing of more money than is needed for economic growth will lead to a short-term drop in interest rates and a long-term increase in inflation.
-FHA loan insurance programs
-Income tax deductions for mortgage loan interest and taxes
- VA loan guaranty programs
All made home purchases by persons of modest income easier EXCEPT
creation of extra money by the Federal Reserve.

Creation of extra money by the Federal Reserve leads to inflation which makes home purchases by persons of modest income more difficult.
The advent of the secondary mortgage market
contributed to real estate speculation and inflation in the late 1970s.
All borrowers have been aided by the strong activity of the secondary money market
Cost-push inflation is the result of
increased manufacturing costs.
Demand-pull inflation has little to do with
manufacturing costs but heavily results in too much money chasing too few goods
Inflation brought on by increased effort necessary to produce the same quantity of a good or service is known as
real-cost inflation.
The REAL cost of interest is the
inflation-ADJUSTED cost
In the late 1980s to curb inflation, the monetary growth policy of the Federal Reserve became one of
restrained supply. This was a period of restrained monetary growth in order to curb inflation.
Expectations about inflation tend to
lag actual changes. This is true whether inflation is heating up or cooling down.
What is the LEAST demanding of appreciation potential in the ownership of real estate?
Owner who occupies a property as a principal residence.
Ultimately, interest rates for real estate mortgage loans are determined by the
marketplace. The marketplace supply and demand determines the interest rates for real estate mortgage loans.
The Federal Reserve Board's objectives for the United States economy incude
high employment, stable prices, steady growth and a stable foreign exchange rate.
The Federal Reserve Board's influences the national economy by adjusting
interest rates on credit cards.

If you are an active investor (i.e. you manage the rentals you own), it is possible to use as much as $25,000 of your losses to offset your other income.
The depreciation period for residential real estate is
27.5 years.

Investment in and sale of capital assets are taxed at a much lower rate than normal means. This is a great incentive to buy, hold, and develop capital assets.
If the government increases taxes
it reduces private income and the consumer cannot spend as much ( it lowers the consumer's disposal income)
The creation of excessive amounts of money by the government results from
the creation of excessive amounts of money by government.