Real Estate A Mature Asset
Introduction: Risk-Seeking and Risk Avoidance Measure
RQ1What circumstances/realities associated with real estate make it an “imperfect”
market?
The circumstances surrounding real estate that make it an imperfect market is buyers
accepting the information presented from sellers that can skew information to gain a profit
(Broxterman & Zhou, 2023). Voluntary disclosure is the added information that can be given if
an individual chooses to provide additional information so it's not mandatory which can lead to
an imperfect market in real estate (Broxterman & Zhou, 2023). A seller can use the unraveling
result and what that does is conceal the different features of a home to gain an edge in the sale
while the buyer has to take the information and ensure they conduct their due diligence
(Broxterman & Zhou, 2023). Real estate professionals can profit off the information they either
give or conceal so real estate is an imperfect market because they can profit (Broxterman &
Zhou, 2023). Sellers sell their homes and have an emotional attachment, so they base their listing
price on their feelings vice what the market is stating the home is worth (Barwick & Wong,
2019).
The flow of information makes real estate an imperfect market and how a buyer takes
that information and understands it also aids in the imperfect market. In Haisken-DeNew et9al.
(2018) and Imberman and Lovenheim (2016), state that the information presented does not have
a shock value due to no noticeable changes happening in the market so the behavior of those in
the real estate market has not been changed and this could be due to those in the market not
understanding the information presented, they could already have the information or they may
not trust the source. Hosea 4:6 (King James Bible, 1979/2024) states, “My people are destroyed
for9lack9of9knowledge: because thou hast rejected9knowledge, I9will9also reject thee, that thou
Real Estate A Mature Asset
shalt be no priest to me: seeing thou hast forgotten the law of thy God, I9will9also forget thy
children.” Understanding the information presented is the backbone for everything in the real
estate world. So real estate will forever be an imperfect market.
RQ2What are the top four factors of demand that affect demand for real estate?
The top four factors of demand that affect demand for real estate is economics,
demographics, consumer confidence, and government policies.
Economics
Economics plays a major role in the demand for real estate and when the down payment
requirements were changed it allowed 4 a greater number of individuals to obtain housing so
their financial situation greatly affects whether they can afford a house Fuster & Zafar, 2021). An
individual’s willingness to pay a mortgage contends with how much money they have to put down on
the mortgage to be able to afford the home (Fuster & Zafar, 2021).
Demographics
Demographics will always affect demand for real estate in that a large group of the
younger generation are doing more renting while the older population may have housing and
mortgages and half to downgrade due to not being able to maintain the house. In the older
population, there is such a thing called aging in place where the elderly want their own
community with such key contributors as transportation, being able to maintain their home and
still being able to move around and have the feeling of being in a stable environment (Ying-Hua
& Pei-Chen, 2019). In the elderly community there needs to be support services provided to aid
in the necessary day to day (Ahn et9al., 2017; Jayantha et9al., 2018).
Real Estate A Mature Asset
Consumer confidence
When individuals feel good about the economy and where it is going, they are more
likely to want to buy into the economy because they can see positive returns. When Covid
happened it pushed a negative vibe towards people maintaining their jobs so which influenced
the real estate market. There was a linear relationship between the stability of the market and
future pricing in the industry (Moreira & Silva, 2019). An individual’s financial stability can
help or hinder their confidence in the real estate market (Chien & Setyowati, 2021).
Government policies
Government policies affect the demand for real estate because they can control whether
developments are built, or affordable housing will be so allowed in specific areas (Chien &
Setyowati, 2021). The government has incentive programs to spur home ownership and they
allow developers to get tax deductions.
RQ3What is a product life cycle and how is it related to the real estate market?
The product life cycle is conducted in phases: recovery, expansion, hyper-supply, and
recession9phase. These phases relate to the real estate market in that an investor needs to
understand how to benefit from the life cycle. When there is too much inventory the real estate
market is in a recovery phase due to the previous development period (Kampamba et al., 2023).
Development happens during the expansion phase and this phase promotes job growth
and typically more individuals will buy homes due to the plethora of inventory (Kampamba et
al., 2023). When the real estate industry have in hyper supply there is a shift in the economy
which causes those who are selling their homes to lower their prices and it also stagnates new
development Kampamba et al., 2023). During a recession, the prices of homes go down because
Real Estate A Mature Asset
there is less of a demand and that could be due to job loss in people downsizing due to the lack
of financing.
RQ4Is real estate a mature market?
The question of is the real estate market a mutual market can be answered with a yes and
a resounding no. By stating that the real estate market is mature it would only be due to areas that
are already stable highly competitive with the high level of development. By stating the real
estate market is not mature it will be the reverse looking at areas where property values are
stagnant, low population growth, and there is no room for expansion so developing an
understanding of the phases of real estate can aid in determining if the market is mature
(Graaskamp, 2018). When a market is developed it can be viewed as mature and if there is still
room for growth or has no infrastructure in place it could be deemed as not being a mature
market.
Real Estate A Mature Asset
References
Ahn, M., Kwon,9H.9J., & Kang, J. (2017). Supporting aging-in-place well: findings from a cluster
analysis of the reasons for aging-in-place and perceptions of well-being. Journal of Applied
Gerontology, 1-27. https://doi.org/10.1177/0733464817748779
Barwick, P. J., & Wong, M. (2019). Competition in the real estate brokerage industry: A critical review.
The Brookings Institution Publication.
Broxterman, D., & Zhou, T. (2023). Information Frictions in Real Estate Markets: Recent Evidence and
Issues.9Journal of Real Estate Finance and Economics,66(2), 203-298.
https://doi.org/10.1007/s11146-022-09918-9
Chien, M., & Setyowati, N. (2021). The effects of uncertainty shocks on global housing
markets.9International Journal of Housing Markets and Analysis,14(1), 218-
242.9https://doi.org/10.1108/IJHMA-03-2020-0020
Fuster, A., & Zafar, B. (2021). The Sensitivity of Housing Demand to Financing Conditions: Evidence from a
Survey.9American Economic Journal: Economic Policy,913(1), 231–265.
https://www.jstor.org/stable/27028651
Graaskamp, J. A. (2018). Fundamentals of real estate development. In Development component series.
Retrieved March 5, 2020, from http://morris.marginalq.com/GREM_RE720_MoreFiles/Urban
%20Econ% 20Graaskamp%20ULI.PDF.
Haisken-DeNew, J., Hasan, S., Jha, N., & Sinning, M. (2018). Unawareness and selective disclosure:
The efect of school quality information on property prices. Journal of Economic Behavior and
Organization, 145, 449–464. https://doi.org/10.1016/j.jebo.2017.11.015
Real Estate A Mature Asset
Imberman, S. A., & Lovenheim, M. F. (2016). Does the market value value-added? Evidence from
housing prices after a public release of school and teacher value-added. Journal of Urban
Economics, 91, 104–121. https://doi.org/10.1016/j.jue.2015.06.001
Jayantha,9W.9M., Qian,9Q.9K., & Yi,9C.9O. (2018). Applicability of ‘Aging in Place’ in redeveloped
public rental housing estates in Hong Kong. Cities, 83, 140-151.
https://doi.org/10.1016/j.cities.2018.06.016
Kampamba, J., Kachepa, S., & Lesobea, K. (2023). An assessment of real estate cycles and their impact
on property values in Gaborone, Botswana.9International Journal of Housing Markets and
Analysis,16(5), 910-935.9https://doi.org/10.1108/IJHMA-03-2022-0037
King James Bible. (2024). King James Bible Online.https://www.kingjamesbibleonline.org/9(Original
work published 1769).
Moreira,9A.C.9and9Silva,9P.9(2019).9Handbook of Research on Corporate Restructuring and
Globalization,9IGI Global.
Ying-Hua, H., & Pei-Chen, L. (2019). Role of property management in service demands of elderly
residents of apartment complexes.International Journal of Strategic Property
Management,24(1), 24-37. https://doi.org/10.3846/ijspm.2019.10852
Real Estate A Mature Asset
The thread must be at least 1,000 words and each RQ must be supported by
at least one scholarly citation in the current APA format.
RQ1What circumstances/realities associated with real estate make it
an “imperfect” market?
RQ2What are the top four factors of demand that effect demand for
real estate?
RQ3What is a product life cycle and how is it related to the real
estate market?
RQ4Is real estate a mature market?
Lisa, thank you for your write-up up and what I did was expound upon what you have
researched.
Imperfect Market
Real estate has many components tied together to make it an imperfect market. Some real estate
transactions take longer than others to complete then there's the seller who has an emotional
attachment to the property, so they want to sell it for the top of the market. Properties have
different locations, different amenities, and other features which can cause the price to be
different so just those factors alone make real estate an imperfect market. Time on the market is
another significant factor that makes real estate imperfect and in real estate, the risk varies due to
the many uncertainties for the closing (Wickramaarachchi, et al., 2021). Incurred expenses are
money that has not been charged yet and in the real estate industry, that expense is difficult to
predict, so there is a risk that the money used in the transaction will come back promptly
(Wickramaarachchi, et al., 2021).
People have an emotional attachment to their homes, which skews how much they would want to
sell the home for and makes for an imperfect market (Bađun & Krišto, 2021). Homes have
Real Estate A Mature Asset
sentimental value due to the memories that have been created over the years. Homes represent a
sense of security and provide a safe space, so each house is different in the real estate space.
Another aspect that makes real estate imperfect is the location of certain properties and an
individual being able to afford that property so buying real estate is not equal across the board.
Another aspect that makes real estate imperfect is the discrimination for minorities to live in
certain neighborhoods so much so that a government policy had to be enacted to institute fair
housing (Kashian & Drago, R.92020).
Factors that Effect Demand for Real Estate
One factor that affects real estate is the zoning laws. In some counties, these laws are hindering
the growth of an area. An example is a city in Virginia that desperately needs low-income
housing, but the zoning does not allow it. People who work in that county have to live outside of
the county and travel more than an hour just to get to work. If the government changes its stance
on some of the zoning laws, it will allow the county to grow and bring in more funding.
Changing the zoning laws could provide more opportunity and more inclusion which will create
an increase in home ownership and housing variety so those that may be excluded due to
financial reasons can in turn expand the marketability of the entire area (Einsweiler, 2023).
Product Life Cycle
Every real estate market seeks to enter the expansion phase and that's when there is a high
demand for housing little vacancies, a lot of construction happening, and supply and demand are
both pulling at each other (Phatudi & Okoro, 2023). An example of the expansion phase is when
we saw the buyers in the market selling for well over $100,000 asking price and they had 10 plus
buyers willing to purchase the property with no contingencies. That is when interest rates were
lower and there was a lot of money being borrowed.
Real Estate A Mature Asset
References
Bađun, M., & Krišto, J. (2021). Financial industry views on the prospective role of long-term care
insurance and reverse mortgages in financing long-term care in Croatia.9Journal of Aging &
Social Policy,33(6), 673-691.9https://doi.org/10.1080/08959420.2020.1750541
Einsweiler, L. (2023). Enhancing land use equity through improved zoning.9The Urban Lawyer,52(2),
249-257.
Kashian, R., & Drago, R.9(2020).9Race in relation to bank depositors and mortgage
applications.9Economic Notes,49(3),9e12168.9https://doi.org/10.1111/ecno.12168
Phatudi, L., & Okoro, C. (2023). An exploration of macro-economic determinants of real estate booms
and declines in developing countries.9Journal of Housing and the Built Environment,38(1), 261-
282.9https://doi.org/10.1007/s10901-022-09957-x
Wickramaarachchi, N. C., Chandani, S. K., & Thilini, M. (2021). Key determinants of time on the
market: An analysis of residential housing market in Sri Lanka.9International Journal of Housing
Markets and Analysis,14(5), 913-935.9https://doi.org/10.1108/IJHMA-06-2020-0071
Real estate is considered an imperfect market due to several key factors that prevent it from
functioning like a perfectly efficient market with complete information and fungible (easily
interchangeable) products. Here are some of the reasons why real estate is an imperfect market:
Heterogeneity of Properties: Unlike stocks or bonds, which are standardized units, real
estate properties are unique. Each property has its own distinct characteristics, location,
size, age, condition, amenities, and other features. This heterogeneity makes it difficult to
directly compare properties and arrive at a precise value.
High Transaction Costs: Buying and selling real estate involves significant transaction
costs, including broker fees, legal fees, appraisals, inspections, and closing costs. These
costs can be a barrier to entry and exit for some investors, reducing market liquidity.
Limited Availability and Information Asymmetry: Real estate, especially in desirable
locations, can have limited availability. Unlike a stock exchange where you can buy
shares any minute, the availability of properties is restricted by what's currently listed for
Real Estate A Mature Asset
sale. Furthermore, there can be information asymmetry between buyers and sellers.
Sellers might not always disclose every defect, and buyers might not have access to all
relevant information about a property's history or potential problems.
Geographic Immobility: Real estate is geographically fixed. You can't relocate a
property to better suit a buyer's needs. This limits a buyer's options and can restrict their
ability to find the perfect property at the right price.
Emotional Attachment: For many people, buying a home is more than just an
investment; it's an emotional decision. This emotional attachment can cloud judgment
and lead buyers to make decisions that are not purely based on the property's value.
Similarly, sellers might be emotionally attached to their property and unwilling to
negotiate on price.
Time-Consuming Transactions: Real estate transactions can take weeks or even months
to complete compared to stocks or bonds which can be bought and sold electronically
within minutes. This time lag can impact investment strategies and decision-making.
Regulations and Zoning Laws: Real estate is subject to various government regulations
and zoning laws that can restrict development, renovation, or usage of properties. These
regulations can impact the value and marketability of properties.
The presence of these factors altogether creates an imperfect market where perfect competition
and complete information are not achieved. This can lead to price inefficiencies, slower
transactions, and greater importance placed on negotiation skills and market knowledge.
Lisa C. Dunn
I have no known conflict of interest to disclose.
Correspondence concerning this article should be addressed to Lisa C. Dunn.
Email:[email protected]
Real Estate A Mature Asset
RQ1What circumstances/realities associated with real estate make it
an “imperfect” market?
Theory
Real Estate A Mature Asset
An imperfect market is a theoretical economic theory that does not meet the
standard features of a perfect market. An imperfect market's characteristics
include heterogeneous products sold within the market. Additionally, with
this type of market, market participants lack access to valuable information.
Furthermore, consumers and producers have the power to influence market
values. Lastly, there are barriers to entry into the market (Trebicka, 2014, p.
3). Real estate markets are usually considered imperfect because of various
factors.
Research
There are many reasons why real estate is termed imperfect. First, it is
because participants in the market need access to more important
information, such as accurate value propositions and comprehensive
property history. Furthermore, there is geographic immobility within real
estate. Moreover, the market has heterogeneous products, as each seller has
unique features of their products. The market is also subject to several
governmental regulations affecting transaction costs.
Analysis
Understanding the circumstances connected with real estate that make it an
imperfect market is essential because it can determine essential investment
decisions and help with planning. For example, an individual who wants to
invest in real estate has to familiarize themselves with the governmental
regulations to be aware of the property values, understand the dynamics in
the market, and predict policy changes. Additionally, when organizations
know that real estate is immobile, they strategically base their locations
according to demand. Lastly, learning about information asymmetry in such
markets can help firms understand the cost of knowing accurate information.
RQ2What are the top factors of demand that affect demand for real
estate?
Theory
Several factors influence the demand for real estate. The income level,
population growth, interest rates, and consumer preferences all play a
significant role in shaping the demand for real estate. Investors and
developers must consider these factors when deciding on property
development and investment. Understanding the demand in the real estate
market is very important for firms while making investment decisions. By
understanding and analyzing these factors, they can better anticipate and
respond to changes in demand, ultimately maximizing their returns in the
real estate market.
Research
Real Estate A Mature Asset
The first factor affecting the real estate demand is the income level. When
there are high-income or rising income levels, the demand for housing will
increase (Kader et al., 2022, p. 5). The second factor is the projected
increase in population (Kader et al., 2022, p. 2). A population forecast to
grow means a projected increase in the potential buyers and, thus, in
demand. The third factor influencing demand is interest rates. The mortgage
repayment mostly depends on interest rates. A slight increase in interest
rates might cause a decrease in housing demand. The fourth factor affecting
demand is consumer preferences. Consumer preferences constantly change
based on social or economic trends and the economy. Therefore, changes in
consumer preferences influence the type of housing in demand.
Analysis
It is essential to understand the factors underlying demand within real
estate. For instance, information on consumer preferences can guide
property investors to develop properties that meet the customer's needs and
wants. The forecast on population growth is also essential to investors, as
projected growth data in a specific location can help them situate their
properties in strategic locations as it will have high future demands. Lastly,
the interest rates will guide real estate participants when they can enter the
market.
RQ3What is a product life cycle and how is it related to the real
estate market?
Theory
Product life cycle refers to the idea that products have a finite amount of
time in the market and go through various stages that call for product
manufacture, distribution, and marketing (Bartlett & Twineham, 2019, p. 7).
The stages within a product life cycle include introduction, growth, maturity,
and then decline. Each stage of the product life cycle is critical within the
real estate market as it assists in making critical decisions.
Research
Real estate also undergoes the four stages of the product life cycle. The first
stage of the production life cycle is the introduction, where firms introduce
new developments to the market (Anderson & Liang, 2001, p. 5). The
products then undergo growth where more individuals occupy the properties,
and the property values increase. In the growth stage, the location attracts
more buyers and real estate developers because of long-term appreciation.
However, demand in such areas is reflective of the increasing demand. The
third stage is the maturity stage, with high rental and occupancy rates and
the highest level of development. During this stage, property prices are
stable, well-established amenities, and minimal risks with mature buyers.
Real Estate A Mature Asset
The last stage is the decline stage, whereby the properties lose their value
and appeal and might require more maintenance costs.
Analysis
It is crucial to make wise investment decisions in real estate by
understanding the life cycles from inception to maturity. Property owners
must work on attracting tenants during the introduction phase. During the
introduction phase, investors must also consider the possible profits and
property prices because some areas that seem lucrative during the
development phase can potentially deplete investor wealth. During the
growth phase, firms must capitalize on increasing demand. In the maturity
stage, investors should capitalize on maintaining the occupancy rates. In the
last stage, the decline phase, investors can focus on the innovation of their
properties, consider selling their assets at a discounted price, or even offer
concessions.
RQ4Is real estate a mature market?
Theory
A mature market is characterized by high competition and a need for growth
(Cohen & Galiniene, 2014, p. 1). Such markets rarely have innovations, and
firms compete to provide differentiated prices and services. Growth
opportunities in the real estate market are limited, particularly in fully
developed metropolitan areas. To be successful in a mature market, firms
should focus on differentiating their properties, understanding consumer
preferences, and capitalizing on market trends.
Research
Real estate can be considered a mature market. This is because the growth
rates in such investments are currently low, and there is high competition.
Firms constantly try to differentiate their products to stand out among other
commercial real estate agents because of the stiff competition. Furthermore,
there are few growth opportunities, mainly in the real estate markets within
the metropolitan areas, as the real estate is fully developed.
Analysis
Firms in the mature market need to maintain a competitive edge by
differentiating themselves, providing high-quality services, and increasing
customer satisfaction. They can also differentiate their properties by
capitalizing on market trends and keeping up with consumer preferences to
help them grow. Understanding how the mature market works is essential to
achieving long-term success in such an industry.
References
Real Estate A Mature Asset
Anderson, R., & Liang, Y. (2001). Point of view mature and yet imperfect:
Real estate capital market arbitrage.Journal of Real Estate Portfolio
Management,7(3), 281–288.
https://doi.org/10.1080/10835547.2001.12089643
Bartlett, D., & Twineham, J. (2019). Product life cycle.Springer
EBooks,1914–1920. https://doi.org/10.1007/978-3-642-28036-8_56
Cohen, V., & Galinienė, B. (2014). Evaluation of commercial property market
maturity: A case of Lithuania.International Journal of Strategic Property
Management,18(2), 151–162.
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Kader, S. A., Zayed, N. M., Md. Faisal-E-Alam, Muhammad Salah Uddin, Vitalii
Nitsenko, & Yuliia Klius. (2022). Factors affecting demand and supply in the
housing market: A study on three major cities in Turkey.Computation,
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