On the dynamics of the primary housing market and the forecasting of house prices

Hanna Augustyniak, Robert Leszczyński, Jacek Łaszek, Krzysztof Olszewski () and Joanna Waszczuk

MPRA Paper from University Library of Munich, Germany

Abstract: This article discusses and explains the dynamics of the primary housing market, focus-ing on housing supply, demand, price and construction costs dynamics. We focus our attention on the primary housing market, because it can create an excessive supply, which can cause distress to the economy. Due to multiplier effects, even small changes in fundamental factors, such as a minor changes in the interest rate, result in demand shocks. Positive demand shifts cannot be easily satisfied, as supply is rigid in the short run. This usually makes house prices grow and developers increase their production, which will be delivered to the market with a lag. Housing developers have the marketing tools to heat up the market for a prolonged period of time. Rising prices can lead to further demand increases, because housing is a consumer and an investment good. When demand moves back to its long run level, the economy is left with excessive supply, falling prices and bad mortgages. We create a simple four-equation model, which is able to replicate the dynamics of the Warsaw primary housing market. Our model replicates historical data in an appropriate way and we apply it to forecast house prices in the next two years on quarterly basis.

Keywords: Housing market cycles; disequilibrium demand and supply forecast (search for similar items in EconPapers)
JEL-codes: E32 E37 E44 R21 R31 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-for, nep-mac and nep-ure
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Chapter: On the dynamics of the primary housing market and the forecasting of house prices (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:61015

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