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1. You are looking at a new home in suburban New Jersey which is selling for $250,000. The rent on similar homes in the same development is $1,500 per month. Based on this information, what is the market user cost of owner-occupied housing?
2. You have just met with a mortgage broker who informed you that you can finance 80% of the purchase price with an interest-only loan with an 6% contract rate. Your marginal tax rate is 25%, property taxes equal 3% of the house value, the premium on the insurance required by the lender equals .5% of the house value, and maintenance equal to 1.5% of the house value is sufficient to offset any physical deprecation. You believe that house price appreciation in this market will be about the same as the return you would receive by investing in the broader financial markets. Based on this information, how much would you be willing to pay for the house?
3. You have a friend who is much more optimistic than you about this particular housing market. In particular, they believe that house price appreciation in this market will exceed the return you would receive by investing in the broader financial markets by 5%. If you are convinced of this future outlook by your friend, how much would you be willing to pay for the house?
4. The federal government has decided to eliminate the mortgage interest and property tax deductions for all borrowers. If you decide that your friend is a little too optimistic and you return to your original assumption that house price appreciation in this market will be about the same as the return you would receive by investing in the broader financial markets, how much would you be willing to pay for the house after this change in tax policy?
5. [Note: The information presented here applies to questions 5 and 6.] If you borrowed $315,000 using a 30-year fixed rate mortgage with a 4.5% interest rate, what is the total amount of interest that you will pay in the first year of the loan (calculate the amount assuming that you make one payment per year)?
6. If you are in the 25% marginal tax bracket, what is the reduction in your annual tax liability you receive due to the mortgage interest deduction?
7. If you currently have your savings in a mutual fund providing an after-tax return of 5%, for it to make economic sense to purchase a property, the internal rate of return associated with buying rather than renting should be

(a) less than 5%. (b) equal to 5%.

(c) greater than 5%. (d) greater than 0%.

8. Price-to-rent ratios increase when...

(a) rents increase.
(b) the expected return on investment in financial assets increases.

(c) the expected return on investment in the local housing market increases. (d) prevailing mortgage rates increase.

1. If the expected return on investment in housing in New York City increases. . . (a) both rents and prices will increase. (b) both rents and prices will decrease. (c) rents will increase and prices will decrease. (d) rents will decrease and prices will increase in the city.
2. If the city subsidizes residential development within New York City, (a) both rents and prices will increase. (b) both rents and prices will decrease. (c) rents will increase and prices will decrease. (d) rents will decrease and prices will increase in the city.
3. If the market user cost of an apartment that rents for $2,000 a month is 5.0%, the implied value of the home is... (a) $100,000. (b) $120,000. (c) $400,000. (d) $480,000.
4. In what year is the movie "Escape from New York" supposed to take place? (a) 1492. (b) 1776. (c) 1997. (d) Now! It's happening right now!