Housing Market Microstructure

TL;DR

This paper develops a model for real estate price evolution considering stochastic interest rates and demand changes, providing insights into housing market dynamics and the subprime crisis.

Contribution

It introduces a novel model that integrates stochastic interest rates and demand fluctuations to simulate housing price evolution and market behavior.

Findings

Simulates housing price dynamics under varying market conditions.

Provides insights into the causes of the subprime lending crisis.

Demonstrates the impact of interest rate and demand changes on prices.

Abstract

In this article, we develop a model for the evolution of real estate prices. A wide range of inputs, including stochastic interest rates and changing demands for the asset, are considered. Maximizing their expected utility, home owners make optimal sale decisions given these changing market conditions. Using these optimal sale decisions, we simulate the implied evolution of housing prices providing insights into the recent subprime lending crisis.