Report on the Market of Real Estate on the City of USA

Question: Describe about the Report on the Market of Real Estate on the City of USA? Answer: 1. Current Position of Real Estate Market in General In the contemporary economy, importance of Real Estate market cannot be ignored simply because of the fact that the number of potential buyers willing to pay for the property is mounting up day by day. The entire operation of the real estate market basically revolved around four stakeholders such as Owners, Renters, Developers, and facilitators. Unlike other marketplaces, there are certain unique characteristics can be noted down in the Real Estate Market, such as Heterogeneity, Durability, High transaction cost, Long time delays, immobility etc (Galaty, Allaway and Kyle). In this context, it is noted that the economic bubble largely affected many parts of the US housing market. The level of Housing price, which was in peak during early 2006; has started to decline in between the last half of 2006 and beginning of 2007. Subsequently it reached at the low position during 2012. The primary cause for this was due to recession in the US over the period 2007-2009. However, in December 201 4, REIT disclosed that the real estate market has started to experience stellar performance. Such improved performance mainly driven by the investors searching for their yield, safety pervasively low interest rates. It is noted that in 2010, only 18% of respondents were in profitable position but is has improved steadily as the proportion of profitable respondents were 68% in 2014. The respondents and subject agreed that the interest rates are going to rise in 2014. The number US properties have been grown up to 5% in January. A no. of 37,392 houses had been repossessed in the month of January, 2015 which was 15th month high. In case of foreclosure there are 119888 properties which is still down than 4% from earlier. Not only that a number of 51, 782 homes were in foreclosure faction on the month of January, 2015, which is 8% up from the month of December, 2014 but it is down at 7% from the earlier year. The lenders had started their foreclosure process on 43,838, which is down at 18% from the 17 month high in December and it drops 15% from year to year. In another country such as China, they are the second larget foreign buyers of home. They have also spent on commercial property around 1.71 billion in U.S. 2011. In case of developed countries value of institutional grade in real estate is 45% which is the 45% of national GDP level. 2. Supply and Demand Balance In the US market place, the collapses of house prices considered as a crucial contributor in global financial crisis. The data related to this have showed that from the period of 1990 to 2008, the level of sales was 80% of total sales of entire market (Meng, Zhou and Gao). So, it can be argued that the supply of new property may have significantly influences the house price fluctuation. Other than the new and existing property supply, the market has also evidence the third possible source of price pressure as the number of vacant property. According to the US Census Bureau, the vacancy rates have increased with a significant rate. From 1965 to 2004, there was a long run average vacancy of 1.4%, which became 3% in 2008 and now average vacancy rate is 2.1%. Not only has that the vacancy rate for the short run was at 4% in first quarter in 2012, which was above from the long run average rate of 3.4%. 3. Rent and Prices (Trends and Forecasts) Bubble in the US economic sector was the result of an increment in housing prices over the rise in rents. In the US market place, in between 1984 and 2013, the level of house rent increased steadily at 3% per year, whereas in between 1997 and 2002, property value increased by 6% per year. At the same time, from 2011 onwards to the third quarter of 2013, the level of property value increased by 5.83% per year, whereas the house rent increased by only 2% per year. Though the govt. provides a tax cut for investing in property, due to such bubbles it become difficult for the individual people to go for ownership of the property. Here, the house price indices supports to assess the housing prices during each and every year. In this context, the study has shown that the average prices have been raised over 30% in early 2016 (Tsolacos). It translates into a precise house price forecast, which is based on the most recent Case- Shiller House Price Index of 158.8 targeting to rise to 207 by ea rly 2016. 4. Laws that affect the investors in Real Estate Real estate investment mostly affected by Zoning Laws. There are mainly three types of zoning area, such as residential, commercial and industrial. Residential zoning laws apply to the residences and multi family dwelling cases. However, the commercial zoning laws are mainly applies to businesses and the industrial like manufacturing shops and plants (Holland, Ott and Riddiough). The purpose of this law is to specify the types of businesses or dwellings in a certain area. This law cumulates the areas of town and city into some specific areas for each type of land. This law may change the real estate investment, which is zoned for commercial or residential today. Here, it can be said that this may be re-zoned for another kind of uses in future. If anybody invests in any kind of real estate which is a rental property the tenants may causes the zoning problem. If the business is homemade then it is not a problem but if the tenant comes to the property, then there may be a complaint of n oise or traffic. Another kind of problem in this law is, if this zoning changes from residential to other classes which mean a high property value, which results more value in case of investment. Again if the class is changed to the residential then the value of the property may decrease results to lose money in case of investment. 5. Real estate investment products REITS is a security which sells like the stock in the major exchanges and can be invest in real estate directly, either it may be through properties or it may be mortgages. CMBS is a mortgage-backed security which is secured by the loan on a commercial property. Figure 1: Property Investment System (Source: Galaty et al.) This model shows that Real Estate investment products have REITS, CMBS etc. References Galaty, Fillmore W, Wellington J Allaway, and Robert C Kyle.Modern Real Estate Practice. Chicago: Real Estate Education Co., 1985. Print. Holland, A. Steven, Steven H. Ott, and Timothy J. Riddiough. 'The Role Of Uncertainty In Investment: An Examination Of Competing Investment Models Using Commercial Real Estate Data'.Real Estate Economics28.1 (2000): 33-64. Web. Meng, Zhou Ji, Tao Zhou, and Shu Hua Gao. 'Research On Supply And Demand Of Xi'an Real Estate Market'.AMR368-373 (2011): 3078-3082. Web. Risso, Wiston Adrin. 'The US Housing Bubble And The Informational Efficiency'.SSRN Journaln. pag. Web. Tsolacos, Sotiris. 'The Role Of Sentiment Indicators For Real Estate Market Forecasting'.J of Eur Real Est Research5.2 (2012): 109-120. Web.