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The main participants in real estate markets are: * Owner/User - These people are both owners as well as tenants. They purchase houses or commercial property as an investment and also to live in or utilize as a business. * Owner - These people are pure investors. They do not consume the real estate that they purchase. Typically they rent out or lease the property to someone else. * Renter - These people are pure consumers. * Developers - These people prepare raw land for building which results in new product for the market. * Renovators - These people supply refurbished buildings to the market. * Facilitators - This includes banks, Real Estate Brokers lawyers, and others that facilitate the purchase and sale of real estate.
The owner/user, owner, and renter comprise the demand side of the market, while the developers and renovators comprise the supply side. In order to apply simple supply and demand analysis to real estate markets a number of modifications need to be made to standard microeconomic assumptions and procedures. In particular, the unique characteristics of the real estate market must be accommodated. These characteristics include: * Durability - Real estate is durable. A building can last for decades or even centuries, and the land underneath it is practically indestructible. Because of this, real estate markets are modeled as a stock/flow market. About 98% of supply consists of the stock of existing houses, while about 2% consists of the flow of new development. The stock of real estate supply in any period is determined by the existing stock in the previous period, the rate of deterioration of the existing stock, the rate of renovation of the existing stock, and the flow of new development in the current period. The effect of real estate market adjustments tend to be mitigated by the relatively large stock of existing buildings. * Heterogeneous - Every piece of real estate is unique, in terms of its location, in terms