California Real Estate Practice Exam

A trend in real estate ______________ the recession trends of business, and when business starts a swing upward, real estate ______________.

1. follows, lags behind

2. lags behind, precedes

3. precedes, lags behind

4. precedes, proceeds

The correct answer is: follows, lags behind

The correct response refers to the cyclic relationship between the real estate market and broader business trends. When the statement indicates that real estate "follows" the recession trends of business, it means that the real estate market tends to react to economic changes after they have occurred in the business sector. Typically, in a recession, businesses may struggle, leading to reduced demand for real estate, whether for residential or commercial purposes. The statement continues with the notion that when business starts to swing upward, real estate will "lag behind." This reflects a common observation in economic cycles, where real estate recovery may take time to manifest after improvements in the business environment are apparent. Businesses may begin to thrive and show profitability before the demand for real estate picks up again, as consumers and businesses take time to regain confidence and invest in property. This trend is rooted in how economic recovery unfolds; businesses often have immediate metrics to indicate recovery, while real estate transactions usually require more time to gather momentum, thus establishing the time-lag effect. Other options present different associations between business trends and real estate, which do not accurately align with the observed lagging behavior of real estate in relation to business cycles.