Prices, Expectations and the Changing Housing Market: a Commentary and Discussion

Abstract

The last decade of housing price fluctuation, crises of housing affordability and the turmoil of housing foreclosures brought housing, and housing markets, closer to centre stage in the debates over the future of the global economy. As part of the renewed interest in housing some recent papers have questioned whether we have an adequate model for understanding housing prices and housing market behaviour more broadly. Specifically, is the expected utility model of housing market behaviour, and the associated hedonic housing price model, still relevant in an increasingly uncertain housing market? Certainly the recent rapid escalation in housing prices and the behaviour of agents in the housing market has further stimulated rethinking of our models of housing markets. Analysts are asking about the future behaviour of and in housing markets, and how the housing market will function in the post housing market bubble decade. It is a useful time to take another look at how the housing market behaves and what underpins housing prices. Even to ask the question: do we need a new model of housing market behaviour?