Modeling House Price Dynamics with Heterogeneous Speculators

Faculty/Professorship: Economic Policy  
Author(s): Dieci, Roberto; Westerhoff, Frank H.  
Title of the compilation: Global Analysis of Dynamic Models in Economics and Finance : Essays in Honour of Laura Gardini
Editors: Bischi, Gian Italo; Chiarella, Carl; Sushko, Iryna
Publisher Information: Berlin [u.a.] : Springer
Year of publication: 2013
Pages: 35-61 ; Diagramme
ISBN: 978-3-642-29503-4
Language(s): English
DOI: 10.1007/978-3-642-29503-4_2
This paper investigates the impact of speculative behavior on house price dynamics. Speculative demand for housing is modeled using a heterogeneous agent approach, whereas ‘real’ demand and housing supply are represented in a standard way. Together, real and speculative forces determine excess demand in each period and house price adjustments. Three alternative models are proposed, capturing in different ways the interplay between fundamental trading rules and extrapolative trading rules, resulting in a 2D, a 3D, and a 4D nonlinear discretetime dynamical system, respectively. While the destabilizing effect of speculative behavior on the model’s steady state is proven in general, the three specific cases illustrate a variety of situations that can bring about endogenous dynamics, with lasting and significant price swings around the ‘fundamental’ price, as we have seen in many real markets.
Keywords: Heterogeneous expectation, Housingmarkets, Boom-bust cycles, Bifurcation analysis
Type: Contribution to an Articlecollection
Year of publication: 14. June 2013