California Real Estate Practice Exam

When the business cycle is in the prosperity phase, the real estate cycle is in a phase of:

1. high construction, high borrowing, high sales.

2. high construction, low sales, high borrowing.

3. low construction, high borrowing.

4. low construction, little borrowing, low sales.

The correct answer is: high construction, high borrowing, high sales.

In the prosperity phase of the business cycle, economic growth is strong, leading to higher levels of consumer and business confidence. This environment typically results in increased demand for real estate, prompting developers to engage in high levels of construction to meet this demand. As more properties are built, there is simultaneously higher borrowing as both developers and homebuyers take advantage of favorable market conditions, such as low interest rates and a robust economy. In this context, the real estate market sees high sales activity as a direct result of the increased availability of properties and the heightened consumer interest driven by positive economic factors. This creates a cycle where rising property values and sales further fuel construction and borrowing, making it a dynamic and active phase for the real estate sector.