One unique characteristic of the real estate market is the
heterogeneity among products. Individual properties can vary across
numerous characteristics. From
location to size, every property is not only defined by a set of unique
characteristics, but also valued at a unique price.
For years, investors and economists have accepted that the
real estate market is cyclical. That is, the market is governed by four
repeating phases: recovery, expansion, hyper supply, and recession. During
these cycles, average property prices will rise, form a bubble, and eventually
drop (think 2008 housing crash). However,
if each property is entirely unique to the next, is it possible that specific
property types can behave differently from the overall market or even have
unique market cycles? Put
differently, of certain types of property, say waterfront residential houses,
appreciate and depreciate at different rates than say, homes located in
mountains?
My project will hope to answer the above questions by
comparing price performance for various types of property from 2000 to 2012.
The implications of these results could be huge for investors. Investing
decisions are largely based on market performance. Moreover, the existence of
"micro markets" that perform differently for certain types of
property would have significant impacts on investing strategy. This study will
determine if these "micro markets" exist and explore the possible
impacts they could have for investors and economists alike.
When you're buying a house, you always here talk of "comps." Why do these matter so much if the market is very heterogeneous?
ReplyDeletePer definition, "comps" are simply houses with similar characteristics of the house in question. Appraisers and agents can use them to estimate a property's value. While not exact, due to the market's heterogeneity, they still provide approximate house values for buyers and sellers and thus, are still used today. Does that make sense? Or were you asking something else?
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