Home Solutions Real Estate Economics and Market Analysis
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The real estate global crisis in 2008 prompted Michael Lewis to compile his book after a comprehensive analysis of the factors that may have led to the recent biggest credit crunch. The idea of investments marginal efficiency is contradicted where Lewis (36) states that future returns are probabilistic and can never be guaranteed. This is explained through cases of people who lost in their investments after supposedly hedging their funds on the numerous mortgage schemes. The mortgages were expected value failed to mature as explained by the idea of marginal efficiency and investors consequently lost their fortunes.
Real estate in the U.S. is a prime industry comprising of building stocks and land. It is actually builds the largest part of the public wealth. Continuous investment in the industry builds up the stock of national capital. There exists minimal risks in real estate investments and the project attracts much less expenses after completion. The main challenge however is identification of prime land and location on which to develop the housing infrastructure. Lewis (57) indicates that the need for housing facilities in the U.S. shot up from the year 2003 which prompted to large investment in the real estate industry. This scenario caused investment firms and banks to cite the investment niche and consequently initiated hedge funds and mortgages to leap from the profitable market.
According to Uzawa (131), there is a high possibility of a decline of returns of investments due increase in the number or quantity of similar ventures. The author holds that with increase in identical investments on the same industry, there is a high possibility that the most productive and lucrative opportunities have already been utilized hence consecutive investments will not earn high profits as the previous ones. Later investment projects will incur high cost of investment and lower profitability returns. In real estate for example, important consideration factors are transport and location. Pioneer real estate developers would certainly capitalize on the most prime locations based on transport and convenience of prospective clients. Later projects would certainly go for lesser prime locations hence experiencing reduced returns…”