Other relevant demand and supply conditions unchanged, a significant increase in local unemployment most directly tends to cause which outcome?
Correct Answer
D) Decreased demand and longer marketing times
Rising unemployment can reduce incomes, financing qualification and confidence, weakening effective residential demand and tending to lengthen marketing times when other conditions are unchanged. Local supply, commuting, population and credit conditions still require analysis.
Why This Is the Correct Answer
Option D is correct because employment and income trends are demand forces, and a significant rise in unemployment tends to weaken effective residential demand. With supply unchanged, fewer qualified buyers tend to mean longer marketing times.
Why the Other Options Are Wrong
Option A: Increased demand and higher prices for homes
Option A says demand and prices for homes increase. Rising unemployment reduces incomes and buyer qualification, which works against demand rather than increasing it.
Option B: Increased construction activity
Option B says construction activity increases. Builders respond to demand, and weakening demand from job losses tends to discourage rather than encourage new construction.
Option C: No impact on residential markets
Option C says there is no impact on residential markets. Employment is a recognized demand force, so a significant rise in unemployment would be expected to affect housing demand.
Fewer paychecks, fewer buyers
When local paychecks shrink, the pool of qualified buyers shrinks and homes take longer to sell.
How to use: Use this phrase when a question links employment changes to housing demand.
Exam Tip
Check the ceteris paribus wording; with other factors unchanged, follow the direct effect of the demand factor described.
Common Mistakes to Avoid
- -Treating employment as a supply factor
- -Assuming national trends override clear local employment changes
- -Concluding prices must fall immediately rather than recognizing a tendency
Concept Deep Dive
Analysis
This question tests how a key demand factor, employment, affects housing markets. With other conditions held constant, rising unemployment reduces incomes, buyer confidence and ability to qualify for financing. Weaker effective demand tends to lengthen marketing times.
Background Knowledge
Demand for real estate depends on population, households, employment, income and the availability of financing. Supply depends on existing inventory and new construction. Appraisers watch local employment trends because they influence both the number of buyers and their purchasing power.
Real-World Application
After a major plant closes in a small city, an appraiser sees listings staying on the market longer and more price reductions. She notes the employment loss as a demand factor in her neighborhood analysis.
More Market Questions
Market analysis confirms that seller financing at 3%, versus a 6% market rate, increased a comparable sale price. What adjustment removes that financing premium?
At the same effective date, reliable value indications support $800,000 for continued use of a property as improved and $500,000 for its cleared site. Immediate demolition costs $100,000. These are the only feasible alternatives, with no other costs or timing differences. Which alternative has the higher net value?
Other relevant conditions equal, growth in the number of households with effective purchasing power in a market tends to have which effect?
In a lakefront market, paired sales show that direct water frontage has the largest price effect of any feature. Which approach to comparable selection best follows from this evidence?
Which circumstance can cause highest and best use as improved to differ from highest and best use as though vacant?
A small group of buyers in a market looks for specialized features that are uncommon in the broader housing supply. What term describes this group?
A neighborhood analysis should include all of the following EXCEPT:
A site legally permits at most 40 units and can physically support 50. Supported comparable analyses find 30 and 40 units financially feasible, with 40 units producing the highest net land value after costs, timing and required return. Which use is maximally productive among these alternatives?
Market evidence isolates a subject value loss from off-site landfill odors. Which listed cause is an external-obsolescence influence?
Which proposed use cannot pass the legal-permissibility screen without evidence that the necessary permission is reasonably probable?
People Also Study
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam
Income Approach
8.2% of exam
Previous Question
In analyzing highest and best use as vacant, an appraiser determines three potential uses are legally and physically possible. Use A has an IRR of 12%, Use B has an IRR of 15%, and Use C has an IRR of 10%. If the required return is 14%, which use is financially feasible? Assume conventional cash flows, unique IRRs and the same appropriately risk-adjusted 14% hurdle for each use.
Next Question
Buyer and comparable-sale evidence shows a residential market divides sharply at school-district lines, while crossing ZIP, county and census boundaries does not separate competing properties. Which boundary is most relevant on these facts?