A simple model of a speculative housing market

We develop a simple model of a speculative housing market in which the demand for houses is influenced by expectations about future housing prices. Guided by empirical evidence, agents rely on extrapolative and regressive forecasting rules to form their expectations. The relative importance of these competing views evolves over time, subject to market circumstances. As it turns out, the dynamics of our model is driven by a two-dimensional nonlinear map which may display irregular boom and bust housing price cycles, as repeatedly observed in many actual markets. However, we also find that speculation may be a source of both stability and instability. --Housing markets,Speculation,Boom and bust cycles,Nonlinear Dynamics

Real Estate Market Efficiency: A Survey of Literature

In this paper, we discuss the question whether or not the real estate market is efficient. We define market efficiency and the efficient market hypothesis as it had been developed in the literature on financial markets. Then, we discuss the empirical evidence that exists concerning the efficiency or inefficiency of financial markets, usually seen as the reference markets as far as market efficiency is concerned. In a separate section, we turn to the real estate market. There, we define the real estate market and discuss various aspects that are decisive for the efficiency of that market. As it turns out, the result found in the literature is inconclusive. Majority of studies provide evidence supporting inefficiency of the real estate market while several studies maintain the notion of real estate market efficiency.

Critical Events and Labour Mobility: Relocations in the Wake of the Ansett Airlines collapse

Migration plays an important role in neo-liberal regional adjustment. This paper explores the role of economic shocks in stimulating internal migration within Australia. Drawing on the experiences of retrenched Ansett airlines employees, it argues that economic crisis impels some households to relocate but traps others in places with restricted employment prospects. For some, the crisis of retrenchment triggers inter-State migration to take up new jobs. For others, it prompts relocation to less expensive housing, often in a geographically proximate location. These opposing responses, which are different outcomes of similar causal processes, exacerbate regional inequalities as they selectively encourage younger skilled workers to enter growing regions. The combination of high housing costs and insecure employment discourages speculative migration. The paper concludes with a brief discussion of the policy implications of these findings

Analyzing the Dynamics of Relative Prices on a Market with Speculative and Non-Speculative Agents Based on the Evolutionary Model

The paper deals with an evolutionary model focused on the relation between the behavior of prices and the structure of the population of economic agents. The model allows for identification of the short-term behavior of prices and the dynamics of the population of economic agents in the context of seven scenarios. These scenarios are a combination of four key factors: market regulations, the maturity of the market; the intervention of the state on the market supply side and the modifications of the incentives to speculate and not-speculate. The main findings of the simulation of the scenarios are: i) The presence of speculators leave long lasting effects which do not die out with the decrease in the number of speculators; ii) In the presence of high speculations the intervention of the state can act as an anchor to the market helping to lower the prices; iii) The market forces have a more lasting effect than the state regulation mechanisms.relative prices, speculative and non-speculative agents, evolutionary model

The role of price expectations in the UK housing market

Copyright University of HertfordshireThe objective of this paper is to explain and derive the non-linear, S-shaped diffusion path of price expectations and provide a forecasting model, three months ahead with the implications assessed. Bounded rationality means that various agents in the U.K. housing market, such as buyers,sellers, estate agents and chartered surveyors, play differing rôles in the overall formulation of expectations of prices. This is analogous to the logistic effect with a diffusion path of dis-equilibrium to the end-point of equilibrium. The empirical analysis makes use of the forwarding-looking price expectations data published by Royal Institution of Chartered Surveyors (RICS) with the actual observations produced by Mortgage lenders, the Halifax and the Nationwide

Manufacturing debt: the co-evolution of housing and finance systems in Sweden

This thesis investigates long-run financial dynamics in Sweden in order to understand how changes in the constitution of housing finance have both shaped and been shaped by the Swedish housing system from the mid-nineteenth century to the present era. Once heralded as one of the most effective housing models in the world, Sweden’s housing system is, today, widely considered to be in a state of acute crisis. Housing scholars often attribute the current state of housing dysfunction to a ‘system switch’ which saw Sweden’s social market system ‘rapidly transition’ to neoliberalism during the 1990s. However, by citing processes such as neoliberalism as core drivers of contemporary housing system dysfunction, scholarly appeals to what are largely perceived as exogenous ideological influences tend to obscure the path-dependant nature of housing and finance system development. As such, the behavioural legacies, norms, and expectations which a housing stock and attendant system of housing finance generate over many decades, and the sectoral actors and interests which help to shape the rules of the game vis-à-vis housing investment, production, consumption and distribution are, all too often, left empirically and theoretically unchecked. This thesis argues that the Swedish model of housing, which was for so long held up as a paragon of social market efficiency and stability, was in fact an ephemeral phenomenon and that, far from being a contemporary aberration of financialised neoliberalism, the current levels of precarity and dysfunction in Sweden’s housing system have a longer pedigree than many scholars assume. I show how a unique model of political economy and industrial relations created a housing industrial complex, producing one of the most concentrated and powerful construction and finance sectors in the world. How speculative housing dynamics and changing attitudes to financial risk generated from outside formal banking channels undermined the basis of this complex and, with it, traditionally decommodified housing forms. How the state moved from attempting to mitigate the risk-taking behaviours of financiers, investors and households, to promoting speculative housing dynamics and embracing the development of a housing finance complex. And how, sponsored by the state, debt-fuelled housing consumption has been a central feature of the Swedish model of housing for over 40 years. Adopting an actor-centred, historicist approach, this thesis studies housing systems as complexes of production, distribution and exchange, which are inextricably linked to long-run evolutions in finance. Exploring longitudinal patterns and trends relating to credit flows to the housing sector, tenure composition, household debt, housing construction, and institutional governance, the thesis emphasises the centrality of housing finance system development – and the state’s role therein - in engendering particular practices and behaviours which, in turn, shape housing system dynamics and attitudes to housing risk on both the demand- and supply-side. In so doing, it positions housing and finance systems as proper objects of historical enquiry, whose path-dependent, coevolutionary dynamics can never be fully appreciated in isolation of each other, or, indeed, of broader political-economic trends. By examining the co-evolution of housing and financial forms in Sweden, this thesis seeks to answer fundamental questions such as: What impacts do changes in the constitution of housing finance have on housing system development? Which actors and expressions of interest have most influence over housing system outcomes? And: Why do housing policy regimes change

Statistical modelling of financial crashes: Rapid growth, illusion of certainty and contagion

We develop a rational expectations model of financial bubbles and study ways in which a generic risk-return interplay is incorporated into prices. We retain the interpretation of the leading Johansen-Ledoit-Sornette model, namely, that the price must rise prior to a crash in order to compensate a representative investor for the level of risk. This is accompanied, in our stochastic model, by an illusion of certainty as described by a decreasing volatility function. The basic model is then extended to incorporate multivariate bubbles and contagion, non-Gaussian models and models based on stochastic volatility. Only in a stochastic volatility model where the mean of the log-returns is considered fixed does volatility increase prior to a crash.Financial crashes, super-exponential growth, illusion of certainty, contagion, housing-bubble.

Bubbles and crashes in finance: A phase transition from random to deterministic behaviour in prices.

We develop a rational expectations model of financial bubbles and study ways in which a generic risk-return interplay is incorporated into prices. We retain the interpretation of the leading Johansen-Ledoit-Sornette model, namely, that the price must rise prior to a crash in order to compensate a representative investor for the level of risk. This is accompanied, in our stochastic model, by an illusion of certainty as described by a decreasing volatility function. As the volatility function goes to zero, crashes can be seen to represent a phase transition from stochastic to deterministic behaviour in prices.financial crashes; super-exponential growth; illusion of certainty; housing-bubble

Housing risk and return: Evidence from a housing asset-pricing model

This paper investigates the risk-return relationship in determination of housing asset pricing. In so doing, the paper evaluates behavioral hypotheses advanced by Case and Shiller (1988, 2002, 2009) in studies of boom and post-boom housing markets. The paper specifies and tests a multi-factor housing asset pricing model. In that model, we evaluate whether the market factor as well as other measures of risk, including idiosyncratic risk, momentum, and MSA size effects, have explanatory power for metropolitan-specific housing returns. Further, we test the robustness of the asset pricing results to inclusion of controls for socioeconomic variables commonly represented in the house price literature, including changes in employment, affordability, and foreclosure incidence. We find a sizable and statistically significant influence of the market factor on MSA house price returns. Moreover we show that market betas have varied substantially over time. Also, results are largely robust to the inclusion of other explanatory variables, including standard measures of risk and other housing market fundamentals. Additional tests of model validity using the Fama-MacBeth framework offer further strong support of a positive risk and return relationship in housing. Our findings are supportive of the application of a housing investment risk-return framework in explanation of variation in metro-area cross-section and time-series US house price returns. Further, results strongly corroborate Case-Shiller survey research indicating the importance of speculative forces in the determination of U.S. housing returns