COS Market Analysis & Trends 3 — Questions and Answers
Question 1: In market trend analysis, 'absorption rate' refers to:
- The pace at which available rental units are leased over a given period (Correct answer)
- The rate at which rent increases are absorbed by tenants
- The percentage of income spent on housing costs
- The speed of capital improvements
Correct answer: The pace at which available rental units are leased over a given period
Absorption rate measures how quickly vacant units are filled, indicating market strength and demand velocity.
Question 2: A COS specialist notices that market rents in the submarket have risen 8% while the subject property's rents increased only 3%. This gap most likely indicates:
- The property may be under-rented relative to its market (Correct answer)
- The property is outperforming the market
- Tenant satisfaction at the property is low
- The property has excess affordable units
Correct answer: The property may be under-rented relative to its market
When market rents rise faster than a property's rents, the property is likely leaving money on the table by being priced below market.
Question 3: Which of the following best describes a 'soft market' condition?
- High vacancy rates and downward pressure on rents (Correct answer)
- Low vacancy and rising rents
- Balanced supply and demand
- Rapid new construction activity
Correct answer: High vacancy rates and downward pressure on rents
A soft market has excess supply relative to demand, leading to higher vacancies and landlords competing on price.
Question 4: For an affordable housing development using LIHTC, the market study must demonstrate:
- Sufficient demand for income-restricted units at the proposed rent levels (Correct answer)
- That market-rate rents in the area are declining
- That the property will achieve 100% occupancy immediately
- That no other affordable housing exists in the submarket
Correct answer: Sufficient demand for income-restricted units at the proposed rent levels
LIHTC market studies must show adequate demand from income-qualified households who can afford the restricted rents.
Question 5: Population growth in a primary market area (PMA) is a leading indicator of:
- Future housing demand (Correct answer)
- Current vacancy rates
- Existing rent levels
- Current absorption capacity
Correct answer: Future housing demand
Population growth increases the pool of potential renters, signaling rising future demand for housing units.
Question 6: A market study delineates a Primary Market Area (PMA) based primarily on:
- Geographic boundaries from which the property will draw the majority of its tenants (Correct answer)
- The city limits of the municipality
- The boundaries of the HUD metropolitan area
- Census tract boundaries only
Correct answer: Geographic boundaries from which the property will draw the majority of its tenants
The PMA is defined as the realistic draw area for tenants, typically based on drive times, commute patterns, and competitive alternatives.
Question 7: When a market study identifies a 'capture rate' of 15%, this means:
- The subject property needs to attract 15% of the income-qualified renters in the PMA to be fully leased (Correct answer)
- 15% of the market's units are vacant
- The property currently houses 15% of the PMA population
- Rents must be set 15% below market to fill units
Correct answer: The subject property needs to attract 15% of the income-qualified renters in the PMA to be fully leased
Capture rate is the share of income-qualified, renter households in the PMA that the project must attract to reach full occupancy.
COS Market Analysis & Trends 3
In market trend analysis, 'absorption rate' refers to: