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Nonlinear delay difference equations for housing dynamics assuming heterogeneous backward-looking expectations

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Abstract

China’s first interest rate hike during the last decade, aiming to cool down the seemingly overheated real estate market, had aroused more caution on housing market. This paper aims to analyze the housing price dynamics after an unanticipated economic shock, which was believed to have similar properties with the backward-looking expectation models. The analysis of the housing price dynamics is based on the cobweb model with a simple user cost affected demand and a stock-flow supply assumption. Several nth-order delay rational difference equations are set up to illustrate the properties of housing dynamics phenomena, such as the equilibrium or oscillations, overshoot or undershoot and convergent or divergent, for a kind of heterogeneous backward-looking expectation models. The results show that demand elasticity is less than supply elasticity is not a necessary condition for the occurrence of oscillation. The housing price dynamics will vary substantially with the heterogeneous backward-looking expectation assumption and some other endogenous factors.

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Authors and Affiliations

  1. Department of Building and Construction, City University of Hong Kong, China

    Leung Andrew Y. T.  (梁以德) (Professor, Doctor), Xu Jia-na  (徐佳娜) & Tsui Wing Shum  (崔詠芯)

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  1. Leung Andrew Y. T.  (梁以德)
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  2. Xu Jia-na  (徐佳娜)
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  3. Tsui Wing Shum  (崔詠芯)
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Correspondence to Leung Andrew Y. T.  (梁以德).

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Communicated by GUO Xing-ming

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Leung, A.Y.T., Xu, Jn. & Tsui, W.S. Nonlinear delay difference equations for housing dynamics assuming heterogeneous backward-looking expectations. Appl Math Mech 28, 785–798 (2007). https://doi.org/10.1007/s10483-007-0609-z

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  • DOI: https://doi.org/10.1007/s10483-007-0609-z

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Chinese Library Classification

2000 Mathematics Subject Classification

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