The Mechanism of Transformation of Global Business Cycles into Dynamics of Regional Real Estate Markets

A. Jakimowicza, S. Kuleszab aInstitute of Economics, Polish Academy of Sciences, Palace of Culture and Science, pl. Defilad 1, PL-00-901 Warsaw, Poland bFaculty of Mathematics and Computer Science, University of Warmia and Mazury in Olsztyn, Słoneczna 54, PL-10-710 Olsztyn, Poland

Full Text PDF

The aim of this article is the identification of the occurrence mechanism of sudden quantitative changes in real-estate market prices, which were observed during the global financial crisis. Since such phenomena did not occur to such an intensity during previous crises, it can be assumed that a new economic dynamic type has emerged in real-estate markets. The most promising of the methods of studying such phenomena seems to be the bifurcation method and particularly the catastrophe theory. This study analyzes changes in the prices of residential property based on cusp catastrophes. Empirical data were fit to a stochastic cusp model to visualize the evolutionary path of real estate market. Two other popular models (linear and logistic) were also estimated to compare results. A comparative analysis proved that the cusp model can best explain structural price instabilities in real-estate markets. The results confirmed that the evolution of the real estate market combines two processes: long-term evolution in the area of non-degenerate stability and discontinuous changes in the area of degenerate stability. Structural changes take place in the system only in the area of degenerate stability. The theoretical and practical results show that the catastrophe theory may have predictive potential, which could support traditional methods of predicting changes on real estate markets.

DOI:10.12693/APhysPolA.133.1351 topics: housing price dynamics, structural transition, cusp catastrophe, critical point, bifurcation set, equilibrium surface