Dresden 2006 – scientific programme

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AKSOE: Physik sozio-ökonomischer Systeme

AKSOE 7: Financial Markets and Risk Management II

AKSOE 7.1: Talk

Tuesday, March 28, 2006, 14:00–14:30, BAR 205

Nonlinear Dynamics of Housing Prices — •Yuri Yegorov — Institute for Advanced Studies, Stumpergasse 56, A-1060, Vienna, Austria

The housing price dynamics differs across countries and regions, but two patterns dominate: positive trend (with tendency to long run asymmetric cycle) and stable price pattern. The goal of this paper is to find its typical features at least for a subset of cases, to suggest the factors that might be responsible for such behaviour and to suggest a model explaining the possible persistence of positive price trends. The pricing of real estate is a complex process, which has both temporal and spatial patterns. Contrary to financial asset, housing is a durable good, which can be used both for consumption and investment. Housing has much lower liquidity and much higher transaction cost. This leads to different time scale in pricing pattern, eliminates high-frequency volatility and leads to the dominance of two main patterns: constant pricing and positive trend. Each of these market states can persist for some time period. Chartist models in finance are more applicable than fully rational models. In the very short run the dynamics of financial markets has both dynamic and stochastic components, and the same is true for real estate markets. Spatial homogeneity of country’s income makes equilibrium state more likely.