The presence of real estate cycles presents a major challenge when forecasting real estate market parameters. If the market value of a residential developer's project exceeds its construction costs, an increase in the supply of units will occur. As the market becomes oversupplied, we would expect which of the following to occur?
A) an increase in occupancy levels
B) an increase in market values
C) a decrease in real rental rates
D) a decrease in construction costs

Question

Quizplus · Accepted Answer

As the market becomes oversupplied, there will be a decrease in demand for rental units, which will lead to an excess supply of units. In order to attract tenants, landlords will have to lower their rental rates, leading to a decrease in real rental rates. An increase in occupancy levels or market values is unlikely to occur in an oversupplied market. A decrease in construction costs is also unlikely to occur unless there is a significant drop in demand for new construction projects.

The Presence of Real Estate Cycles Presents a Major Challenge