From the curriculum, “Various market and economic factors affect real estate. For instance, interest rates directly or indirectly affect a multitude of factors associated with the demand and supply for real estate, such as business financing costs, employment levels, savings habits, and the demand and supply for mortgage financing.”
if you owned a RE business and your interest costs sky rocketed through the roof… where would you look to cut costs?
This is macro economical assumption. Higher IR, lower employment, lower consumption, lower demand for apartment and other kind of RE such as market centers, hotels, etc. Only psychiatrically policlinics, sanitariums and prisons as kind of RE investment may have prosperity while economy is in contraction.
Think Taylor rule
I thought the unemployment rate here was from a broad perspective, not just the RE business related? Like if the unemployment rate is high, demand for RE is low. I understand how the high interest rate will impact the unemployment rate in RE business, but how does it impact the unemployment in the non-RE business?
So high IR and low employment are linked together as an assumption? Somehow in the text, they say interest rate has impact on the employment rate?
Still don’t get it…Can you elaborate more? Per Taylor rule, R optimal =R neutral + 0.5( GDP forecast - GDP trend) + 0.5(I forecast - I target)
Seems here they use GDP to forecast the interest rate, not the other way around?
Yepp. That’s what I said. Sorry about my English if it wasn’t clearly understood. Also, recall Econ from L1 and L2 or use Google.