Tiny Real Estate Bubbles

Abstract

This case is appropriate for a course in introductory real estate, real estate analysis, or economics. It provides a basis for developing an understanding of the economics of real estate markets, price to rent ratios, and speculative bubbles. The student plays the role of an external consultant to a fictitious real estate investment firm. This firm is interested in expanding its investment portfolio in small towns with tourist based economies. Real data from the Durango real estate market is provided. There are signs that the market may currently be in or possibly nearing the end of a speculative real estate bubble. Students are asked to evaluate this market and form a conclusion regarding the markets over or under valued condition. This case provides students an opportunity to consider property values based on factors other than a discount cash flow analysis. Depending on the instructor’s guidance, students can examine the case from two processes; 1) use of only the real data provided in the case or 2) further research and gathering of additional micro and macro market data. In either case the main objective of the case is for the student to develop a formal analysis and draw a conclusion regarding the current local real estate market’s over or under valuation condition.