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Land Acquisition and Development Finance Part I - page 4 / 7





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agriculture industry or an influx of vacationing residents in good weather seasons flag opportunities for short-term rentals. Similarly, in the Sunbelt, there is a market for the homebuyer looking for a second residence in the winter.

Population data also points to the type of housing opportunities in the market. example:


  • Growth trends in multi-cultural markets may signal opportunity due to the influences of racial and ethnic preferences on housing demand and product type.

  • Size fluctuations in age categories increase the demand for some housing and decrease it for others. A current breakdown and trend progressions can help determine the type of housing that may be needed and in what quantities.


Different income brackets have different expenditure patterns, thus household income distribution helps you determine the housing affordability for a given region. As a rule of thumb, monthly mortgage payments of buyers should not typically exceed 25 percent of their gross monthly income, and no more that 33 percent of their income when added to other installment debt. Consider the economics in recent years when mortgage rates were low. Apartment renters were flooding the home buying market because the cost of buying a home was cheaper than rent. Given these guidelines of affordability, it stands to reason that higher and mid-levels have more expendable income for luxury items, higher priced goods, savings and investment. After figuring the housing affordability range for an area, you can make a comparison to the prices of homes already purchased. The results help you decipher whether homes are selling at, above, or below purchasing power of the area.

Supply and Demand Analysis

The supply and demand analysis helps you form conclusions about the need for your project in the market area. Opportunity in a market exists only when the level of demand remains high up through the point in time when your product goes on the market. You must determine whether you project will satisfy the demand, create a surplus, or address a unique niche in the area.

A comparison of the existing supply and vacancy rates with household growth

projections provides a good estimate of the annual housing shows a low supply and high demand for a particular type of










demand. If your analysis project you might proceed is high, you should also

consider the potential for a market saturation in which the housing supply is meeting the area’s demand and cannot justify more development. Similarly, if

nearing or there are a

large number of properties up for resale, this may reduce your opportunity because it may devalue your project. Housing supply is made up of both new existing resale homes. New rental projects also draw from the demand pool.

in the area unsold and Thus your

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