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10 Facts on Real Estate Finance for a Research Project

Like with most industries were business operations are carried out solely for the reason of making a profit, the real estate industry relies heavily on finance to keep its wheels spinning. Therefore, it should come as no surprise if one is asked to conduct research projects consisting of financing in real estate. Finance in real estate affects both sides of the demand-supply chain as real estate owners require funding to build accommodating structures, while home owners or rent seekers require funds to buy or rent the homes they plan to reside in.

Therefore, to simplify the task of understanding real estate and the role finance plays in it, this article will be providing some important facts covering today’s subject matter which will aid anyone looking for statistics to back up his or her research project. This article will be the first in a three-part series providing materials on creating a research report and the follow-up articles will consist of topics which you can choose from as well as a sample essay on how to write extensively on real estate finance. So in that vein, here are the 10 facts promised at the beginning of the series:

  1. In the United States, the market crash which occurred in the 1980’s led to the consolidation of lending institutions and this weeded out unstable financial institutions. By 2009, the number of savings and loan banks in the US was reduced from 4,022 by 1990 to 1,158 in 2009 while commercial banks reduced from 15,000 to 6,379 in the same time period. A large number of these financial institutions were put under the control of the Federal Deposit Insurance Corporation and the Federal Reserve Bank.
  2. Although savings and loan banks as well as commercial banks form the larger part of financial institutions that back the real estate sector, credit unions have also played a part in financing residential project in the real estate sector. Statistics show that the 7,244 credit unions in the US currently control $285billion as well as $121billion in loans to its members and the chunk of these loans goes into the real estate sector.
  3. The lucrative nature of the real estate sector has also attracted interest from other financing verticals such as the Life and Health Insurance niche. Statistics provided by The Insurance Information Institute show that companies in the life and health insurance niche invest approximately 9.85% to 10.87% of their total asset in residential loans. As of 2008, the amount put to this percentage was $327.4billion in real estate loans and this number spans across both residential and commercial properties in the US.
  4. In 2006, substantial losses in the loan and savings industry led to the creation of the Federal Deposit Insurance Act which ensured that all financial institutions—loans, savings, and commercial banks—operated through a mutual Deposit Insurance Fund in other to sanitise the loan and insurance industry. This in turn led to the restructuring of the residential loan market for both mortgage lenders and borrowers.
  5. The Safe Mortgaging Licensing Act was created in 2008 to provide regulations for mortgage lending originators (MLO) before a company can function as a mortgage provider for families, households and individuals. To ensure that MLOs function between legal frameworks, they are required to register with the Department of Real Estate (DRE) before going into operation. A maximum penalty of $10,000 can be levied on MLOs that refuse filing with the DRE as required by the act.
  6. The real estate market is affected by fluctuations in the economy and appreciations and deflations occur when a boom or recession happens. Statistics show that commercial properties in the United States fell between 40 to 50% between 2006 and 2010 due to the recession that occurred between these periods. While for residential properties, their market value depreciated between 20 to 50% in the same timeframe.
  7. The real estate market experienced its largest peak period in the 90’s due to a strong economy and the availability of mortgage and loan rates/plans that were favourable to potential buyers. Statistics showed that the real estate industry experienced a 30-40% growth between the year1990 and 1998. This was due to 100% financing plans and the hunger to make quick profits by flipping real estate ownership.
  8. The 2007 economic recession led to the largest real estate meltdown recorded in US history. This led to the largest number of foreclosures in the United States within a one-year period. Statistics showed that in 2009, the situation had deteriorated to a level where there were more foreclosures than marriages recorded for the first time in the US history. The fall of the real estate sector was attributed to poor financial planning from the 90’s boom as well as the economic recession experienced in that timeframe.
  9. Statistics from the Federal Deposit Insurance Corporation (FDIC) showed the aftermath of the economic recession on loans and financial institutions in a public report at the end of 2010. The bleak numbers were that the number of non-performing commercial loans continued to increase for the next 16 consecutive quarters. Also, 775 banks which made up 10% of the total number of banks in the US were listed as problematic depository institutions due to loan defaults primarily from the commercial and residential real estate industry.
  10. The state of Utah records the lowest number of homeless people due to the policies set in place by its government. The policy includes affordable housing loans as well as the giving out of free homes to homeless residents since 2005. Statistics in 2014, show that Utah had reduced its homeless population by approximately 74% when compared to its 2005 numbers.

Here, we come to the end of the 10 important facts on real estate and finance which you should consider as important facts and statistics which to use in buttressing the arguments or questions raised in your project. This is intended to simplify your research project and the preceding articles in the series will provide more information on how to go about writing a research project guaranteed to get you the top marks you deserve. So we endeavor you stay tuned to our next pieces 20 topics and 1 sample essay on real estate finance as well as the research project guide on the subject.

References:
Department of Real Estate (2013). Real Estate Finance.
http://www.dre.ca.gov/files/refbook/ref12
Babalola, O. (2002). An appraisal of the Impact of Primary Mortgage Institutions in Housing Procurement in Nigeria. Journal of the Nigeria Institution of Quantity Surveyors vol, 13-16.
Federal Mortgage. (2003). Mortgage News: A Quarterly in-house Journal of the Federal Mortgage Finance Ltd; vol 1 no. 4.
William, B. (2013). Real Estate Finance and Investments, Thirteenth Edition.
http://www.gbv.de/dms/zbw/516413465
Steve, B. (2008). The Complete Guide to Real Estate Finance for Investment Properties.
http://cdn2.media.zp-cdn.com/21275/Steve_Berges_-_Complete_Guide_to_Real_Estate_Finance_for_Investment_Properties-52a7ef
The EPA Journal. (2005). The Anatomy of a Real Estate Development.
https://clu-in.org/conf/tio/refinancebasics_050906/prez/FinanceBasics050106bw
Retipster.com. (2011). 35 Real Estate Facts.
http://retipster.com/35-real-estate-facts/

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