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Real Estate Finance: An Essential Aspect of Modern Economy

Explore the significance of real estate finance in developed economies, accounting for over half of all asset value. Learn about the vast market size and the crucial role of financial intermediation in real estate transactions.

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Real Estate Finance: An Essential Aspect of Modern Economy

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  1. REAL ESTATE FINANCEFIN 3334/5334 Professor David M. Harrison Fall 2009

  2. What is Real Estate Finance? • Finance Defined – • Real Estate Defined – • Note: Real Property = • Real Estate Finance is…

  3. Why is Real Estate Important? • Assets of “Developed Economies” – Year End 2002 • Residential Property: $48 trillion • Commercial Property: $14 trillion • Equities: $20 trillion • Government Bonds: $20 trillion • Corporate Bonds: $13 trillion • Total: $115 trillion • REAL ESTATE ACCOUNTS FOR OVER HALF OF ALL ASSET VALUE IN THE DEVELOPED WORLD!!! Source: The Economist

  4. U.S. Security Market Size by Sector • Debt: • Commercial Paper: $2.2 trillion • Treasuries: $5.0 trillion • Agency/GSE: $6.7 trillion • Municipals: $2.5 trillion • Corporate/Foreign: $10.1 trillion • Bank Loans: $1.7 trillion • Other: $1.7 trillion • Mortgages: $13.5 trillion • Consumer Credit: $2.4 trillion • Total: $45.9 trillion • Equity: • Corporate Equities: $20.8 trillion Source: FRB Pub. Z1, Table L.4, 6/7/2007

  5. U.S. Credit Market Debt by Sector Source: FRB Pub. Z1, Table L.4, 6/7/2007

  6. The Environment of Real Estate Finance • Institutions: • Markets:

  7. The Process of Financial Intermediation

  8. Warm-up Exercise

  9. Warm-up Exercise: Solution

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