California Real Estate Practice Exam

The price of real property _______ as the value of the dollar decreases. The price of real property _______ as the value of the dollar increases.

1. decreases, decreases

2. decreases, increases

3. increases, decreases

4. increases, increases

The correct answer is: increases, decreases

The choice that identifies how the price of real property reacts to changes in the value of the dollar is based on the relationship between currency value and real estate value. As the value of the dollar decreases, it means that the purchasing power of that dollar is lessened. In inflationary times, where the dollar's value is declining, investors and buyers tend to seek physical assets, such as real estate, as a hedge against inflation. Consequently, demand for real property increases, which tends to drive property prices up. Conversely, when the value of the dollar increases, purchasing power rises. In this scenario, fewer individuals may feel the need to invest in real property, as they may not perceive the same urgency to protect their wealth from inflation. This decrease in demand can lead to a reduction in property prices. Thus, the price of real property increases when the value of the dollar decreases, and decreases when the value of the dollar increases. This understanding is crucial for grasping market dynamics in real estate, particularly in relation to economic indicators like inflation and the strength of the dollar.