| It is our personal belief that any idiot
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| | 1.5 - 6% of the purchase price.
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| can buy or sell real estate, it isnot
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| | Long time delays - The market adjustment
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| only our belief it is also a fact, no one
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| | process is subject to time delaysdue to
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| would ever believe that alower class gun
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| | the length of time it takes to finance,
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| touting hill billy from Texas could ever
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| | design, and construct newsupply, and also
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| cash in on theprospects of real estate
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| | due to the relatively slow rate of change
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| however texas is home to some of the most
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| | of demand.
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| wealthyreal estate investors whom never
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| | Because of these lags there is a great
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| finished Middle school and began work
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| | potential for disequilibrium in theshort
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| atthe age of 13 to pay the bills after
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| | run. Adjustment mechanisms tend to be
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| marrying there cousins (ok yeah I
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| | slow, relative to more fluidmarkets.
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| knowthat was out of line). The point we
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| | Both an investment good and a consumption
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| are trying to make is by knowing
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| | good - Real estate can bepurchased with
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| realestate basics anyone and we mean
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| | the expectation of attaining a return (an
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| anyone can make money buying and
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| | investment good),or with the intention of
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| sellingreal estate, just read our basics
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| | using it (a consumption good), or both.
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| below.
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| | Thesefunctions can be separated (with
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| Heterogeneous - Every piece of real
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| | market participants concentrating on
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| estate is unique, in terms of
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| | oneor the other function) or can be
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| itslocation, in terms of the building,
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| | combined (in the case of the person
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| and in terms of its financing. Thismakes
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| | thatlives in a house that they own). This
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| pricing difficult, increases search
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| | dual nature of the good means that itis
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| costs, creates informationasymmetry and
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| | not uncommon for people to over-invest in
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| greatly restricts substitutability. To
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| | real estate, that is, toinvest more money
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| get around thisproblem, economists
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| | in an asset than it is worth on the open
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| (beginning with Muth (1960)) define
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| | market.
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| supply in terms ofservice units, that is,
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| | Immobility - Real estate is locationally
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| any physical unit can be deconstructed
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| | immobile (save for mobile homes,but the
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| into theservices that it provides.
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| | land underneath them is still immobile).
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| Olsen (1969) describes these units of
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| | Consumers come to the goodrather than the
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| housing services as an
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| | good going to the consumer. Because of
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| unobservabletheoretical construct.
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| | this, there can beno physical
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| Housing stock depreciates making it
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| | market-place. This spatial fixity means
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| qualitativelydifferent from a new
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| | that market adjustmentmust occur by
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| building. The market equilibrating
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| | people moving to dwelling units, rather
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| process operatesacross multiple quality
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| | than the movement ofthe goods. For
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| levels. Further, the real estate market
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| | example, if tastes change and more people
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| istypically divided into residential,
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| | demand suburbanhouses, people must find
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| commercial, and industrial segments.
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| | housing in the suburbs, because it is
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| Itcan also be further divided into
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| | impossibleto bring their existing house
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| subcategories like recreational,
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| | and lot to the suburb (even a mobile
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| incomegenerating, area, historical
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| | homeowner, who could move the house, must
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| protected, etc.
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| | still find a new lot).
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| High Transaction costs - Buying and/or
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| | Spatial fixity combined with the close
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| moving into a home costs much morethan
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| | proximity of housing units in urbanareas
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| most types of transactions. These costs
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| | suggest the potential for externalities
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| include search costs, realestate fees,
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| | inherent in a given location.
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| moving costs, legal fees, land transfer
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| | After learning these basics you two can
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| taxes, and deedregistration fees.
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| | be rich and finally move out ofyour
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| Transaction costs for the seller
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| | parents basement or grandmothers attic.
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| typically range between
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