Theoretical foundations of real estate market behavior

Abstract

The explanation of the price and value of real estate is still a big challenge that limits forecasting the market value, and explaining bubbles and crashes in the real estate market. Thus, this paper extends the theory of market equilibrium to redefine the value concept for explaining market behavior in real estate. The demand–supply analysis is used to define market value and value distribution between sellers and buyers in the real estate market. From this base, the roles of investors and credit institutions are identified in promoting real estate activities, and also in causing bubbles and crashes in the real estate market. Moreover, numerical experiments are used to conduct market behavior in typical situations with defined demand and supply functions in the real estate market. The research results and findings provide key implications for providers, investors, customers, credit institutions, and governance in the real estate industry. The paper also contributes to the theoretical foundations for further research on market behavior and valuation in real estate.