REAL ESTATE economics LUMBLEAU REAL ESTATE SCHOOL

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1 REAL ESTATE economics

2 Real Estate Economics First Edition, by Derf V. Fredericks ISBN All Rights Reserved. No part of this book or the method of application of questions to paragraphs for application and retention may be reprinted, reproduced, transmitted, stored in a retrieval system or otherwise utilized in any form or by any means electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without the prior written permission of this publisher. Printed in the United States of America. DISCLAIMERS Although every effort has been made to provide accurate and current information in this text, the ideas, suggestions, general principles, and conclusions presented in this text are subject to local, state, and federal laws and regulations, court cases, and any revisions of the same. The author and/or publisher is not engaged in rendering legal, tax, or other professional services. The reader is thus urged to consult with his or her employing broker and/or seek legal counsel regarding any points of law. This publication should not be used as a substitute for competent legal advice. Further, the reader of this material hereby releases and forever discharges the publisher from any and all causes of action and/or claims for relief which have been or may be sustained as a result of the information contained herein. Forms reprinted with permission. PUBLISHING

3 Contents Acknowledgments...iv Preface...v Chapter 1:... 1 Economics Learning Objectives...1 Microeconomics and Macroeconomics...2 The Supply and Demand Seesaw...3 Real Estate Economics Supply, Demand, and Market Prices... 4 A 50-Year Snapshot of Median Home Prices Nationally... 4 The Credit Crisis Housing Demand and Supply Case Study... 6 The Terms of Economics...7 Communist Manifesto Chapter Summary...14 Glossary...16 Chapter 1 Quiz...20 Chapter 2: History of Money from Gold to Fiat and Digital Learning Objectives The Origins of Money Fiat Currency (Domestic and International) and the Petrodollar...30 Plastic and Digital Money...34 Barter - An Exchange of Goods, Services, and Ideas...36 The Early Years of Barter...36 Advantages and Disadvantages of Barter Systems...39 Older History of Money and Barter Chapter Summary...44 Glossary...46 Chapter 2 Quiz...48 Chapter 3: interest Rate Cycles Learning Objectives The Bond Market, Interest Rates, and Real Estate...56 Interest Rate Histories...58 Falling Treasuries...60 Forecasting Future Interest Rate Trends...60 Origins of Interest Rates...66 Lending, Livestock, and Wealth Creation...66 Unit Fraction...68 Key Dates in Interest Rate History...68 U.S. Rates and the Federal Reserve...68 From High to Low Rates How Near Zero and Negative Rates Destroy Wealth...70 Chapter Summary Glossary Chapter 3 Quiz Chapter 4: How Capital Drives Housing Markets Learning Objectives...85 Conventional and Non-Conventional Capital Access...86 Private and Non-Banking Money Sources...88

4 The Cost of Money and Capital...90 Key Benchmark Interest Rates for Mortgages and Other Loans...90 Key Prime Rate History Dates...91 The Federal Reserve and Capital Markets Alternate Capital Sources...94 Subject To Purchase Deals...95 Garn-St. Germain Act: 12 U.S. Code 1701j Preemption of due-on-sale prohibitions...98 All Inclusive Deeds of Trust (AITD) Land Contracts (or Contracts for Deed) Chapter Summary Glossary Chapter 4 Quiz Chapter 5: Stagflation, Deflation, Inflation, and Hyperinflation Learning Objectives Inflation s Negative and Positive Impacts Inflation Measurements and Theories Inflation Measurements Inflation and Compounded Positive Returns Staggering Investment Returns for a Lender or Investor Inflation How accurate are inflation rates? Income is lacking behind rents Pricey Real Estate Regions Consumer Price Inflation Rates by Nation Chapter Summary Glossary Chapter 5 Quiz Chapter 6: Boom and Bust Cycles California, USA, and international Learning Objectives California s Demographics and Home Price Trends California Demographics Historical Median Home Prices in California California s Shadow Inventory and Foreclosure Crisis Top 20 National Foreclosure Percentages by California Metro Region (2011) Decreasing Supply of California Homes National and International Reasons for California and U.S. Down Cycles Access to Capital Famous Inflationary Time Periods Weimar Republic ( ) Greece Hungary Yugoslavia Zimbabwe Chapter Summary Glossary Chapter 6 Quiz Chapter 7: Credit Crisis vs. the Great Depression Learning Objectives The Great Depression ( ) Dow Jones Averages Black Monday (Oct. 28th) and Black Tuesday (Oct. 29th) The Credit Crisis (2007 onward) REAL ESTATE economics

5 The Credit Crisis: Cause and Effects Crisis Bailouts and Opportunities Great Depression Bailouts and Opportunities The Credit Crisis Bailouts Chapter Summary Glossary Chapter 7 quiz Chapter 8: Population & Migration Learning Objectives Population Trends: The Early Years The Industrial Revolution Migration Boom The Top 20 Most Populous U.S. Cities in Historical Urban and Rural Population Percentages National Migration and Population Trends (20 th and 21 st Century) Three Key Migration Trends Top 20 Largest U.S. Cities: Popular Immigrant Destinations Nationwide California Migration and Population Trends Population Changes and Growth Rates (Southern California Counties 2013) Population Changes and Growth Rates (Northern California Counties 2013) Housing Markets Top 20 Housing Markets (2016) Top 20 Housing Markets (2017) Top 20 Hottest Housing Markets in State and National Population Trends National Population Trends - U.S. Census Bureau (January 2016) California Population Trends - U.S. Census Bureau (January 2016) Income Gaps Worldwide Poverty Guidelines - 48 Contiguous States and Washington DC Global Income Inequalities Chapter Summary Glossary Chapter 8 Quiz Chapter 9: History of Suburbia in the 20th Century Learning Objectives The Suburbia Evolution s and 1950s Suburbia s Evolution: The 1950s Suburbia s Evolution The 1960s and 1970s Skyrocketing Inflation, Interest Rates, and Property Values in the 1970s Suburbia s Evolution - The 1980s and 1990s Wraparound Mortgage Example: Chapter Summary Glossary Chapter 9 Quiz Chapter 10: Urbanization and the 21st Century Learning Objectives Urbanization Trends - California California is the #1 Most Urbanized State California s Megalopolis Regions The Top 5 Megalopolis Regions Nationally Urbanization Trends National The Top Urban Regions Urbanization, Big Data, and Real Estate...267

6 Top Online U.S.-Based Search Engines Urbanization Trends Worldwide The World s Population and Urbanization Trends The Top 10 Most Urban Countries or Areas Globally (2014) The Top 10 Least Urbanized Countries or Areas Globally (2014) Top 10 Highest Paying Professions in California Average California Commute Time to Work ( ) Transportation Expenses & the California Economy About SCAG Gasoline Taxes and Fees in California (Effective July 1, 2019) Average Commute Time Per California County Taxes and Fees Paid in California State Income Tax Rates Property Taxes Median Property Taxes Paid in California (2017) Other Common Taxes and Fees Paid in California and Elsewhere Chapter Summary Glossary Chapter 10 Quiz Chapter 11: Generational Shifts - Baby Boomers, Generation X, and Millennials Learning Objectives Generational Groups National Association of REALTORS Home Buyer and Selling Trends Generational Shifts, Money, and Debt Age Characteristics of Home Buyers (2014 data NAR) Median Income and Ages for all Homebuyers in 2013 (NAR) Race/Ethnicity for all Home Buyers (NAR) Digital Connections & Digital Money Social Media Statistics for 10 Connected Digital Groups Digital Money Generational Wealth The Unaffordability of Housing for Millennials Wealth Inequality and Increasing Poverty Numbers Chapter Summary Glossary Chapter 11 Quiz Chapter 12: Family Structures and Economics Learning Objectives Family Historical Trends in the U.S California Household Demographic Trends The Income Gap Begins To Widen In California: Education Gap, Experience, and Income Inequality: California vs. National Household Income Histories U.S. Census Bureau Quick Facts on California (2014 Household Numbers) California Population Estimates and Future Projections Projected California Population Growth Rate by Age Group ( ) Crisis Opportunities for Real Estate Agents Jobs, Wealth, and Agency Opportunities GDP by Metropolitan Region (2014) GDP by State (2014) How Broken Families Impact Real Estate Divorce by Age Range and Gender: Declining Marriage and Divorce Numbers The History of No-Fault Divorce REAL ESTATE economics

7 Highest Divorce Rates Worldwide Millennials Family Disillusionment The Digital Family Divide How the Digital World is Shortening Connections How the Digital World is Reducing Attachments Chapter Summary Glossary Chapter 12 Quiz Chapter 13: Governmental Regulations and Agencies Learning Objectives Regulations Affecting Agents Locally California Agency Benefits Veterans Financing and Subsidies for California Housing National Governmental Regulations New changes under the TRID rule: Discrimination, Agents, and Owners CalBRE Real Estate Law Real Estate Law and Subdivided Lands Law Regulations of the Real Estate Commissioner Administrative Procedure Act Pertinent Excerpts from the California Codes Recent California Real Estate Law Changes The 29 California Legal Codes California Constitution CONS The Original California Constitution for Individuals in The California Constitution of Business and Professions Code BPC Civil Code CIV Code of Civil Procedures CCP Commercial Code COM Corporations Code CORP Education Code EDC Elections Code ELEC Evidence Code EVID Family Code FAM Financial Code FIN Fish and Game Code FGC Food and Agricultural Code FAC Government Code GOV Harbors and Navigation Code HNC Health and Safety Code HSC Insurance Code INS Labor Code LAB Military and Veterans Code MVC Penal Code PEN Probate Code PROB Public Contract Code - PCC Public Resources Code PRC Public Utilities Code PUC Revenue and Taxation Code RTC Streets and Highways Code SHC Unemployment Insurance Code UIC Vehicle Code VEH Water Code - WAT Welfare and Institutions Code WIC...373

8 Chapter Summary Glossary Chapter 13 Quiz Chapter 14: Basics of Commercial Real Estate Learning Objectives Commercial Real Estate Property Descriptions The Top 10 Rent Growth Markets (May 2015) The Top 10 Sales Generating Malls in the USA in The Top 5 Sales Generating Malls Worldwide in Commercial Real Estate - Value Analysis Strategies Commercial Real Estate Financing Options Commercial Loan Term Options Prepayments Commercial Real Estate Trends Multi-Family Apartments Hotels / Motels Office Retail Industrial Chapter Summary Glossary Chapter 14 Quiz Chapter 15: Land Use, Zoning, and Development Learning Objectives Land Use and Zoning Legal Precedents Standard State Enabling Act and Standard City Planning Enabling Act Procedural Law vs. Substantive Law Land Use, Zoning, and Development in the United States Zoning Designation Examples Single-Use Zoning Land Use, Zoning, and Development in California Smart Growth and High-Density in California and Elsewhere Steps in the Construction and Development Process Restrictive Covenants Steps in the Construction Process Phase I: Excavation Phase 2: Foundation Phase 3: Framing Phase 4: Rough Mechanics Phase 5: Drywall Phase 6: Finish California Building Codes Popular Home Styles in California Chapter Summary Glossary Chapter 15 Quiz Glossary Question Practice Test Quiz Answers Question Practice Test Answers About the Authors REAL ESTATE economics