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The influence of herding behaviour on house prices

The influence of herding behaviour on house prices Purpose – A comparison of fundamental house prices with actual prices indicates that house prices fluctuate more than fundamentally justified, a fact difficult to explain with standard rational agent models. The purpose of this paper is to evaluate to what extent herding behaviour among investors can be seen as an explanation for deviations of house prices from their fundamental value. Design/methodology/approach – To see whether house prices fluctuate more than fundamentally justified, the paper calculates a fundamental house price and compares it to the actual price for seven European and three non‐European OECD countries. Then the paper incorporates herding behaviour into the house‐price model and examines its influence on the development of prices. Findings – A comparison of the fundamental house prices with actual prices indicates that house prices fluctuate more than fundamentally justified. The calibration of the herding model indicates that it can help to explain fluctuations of actual house prices. Originality/value – The incorporation of herding behaviour into a housing model and the calibration of its impact are the main innovations of this paper. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of European Real Estate Research Emerald Publishing

The influence of herding behaviour on house prices

Journal of European Real Estate Research , Volume 5 (3): 22 – Oct 19, 2012

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Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-9269
DOI
10.1108/17539261211282046
Publisher site
See Article on Publisher Site

Abstract

Purpose – A comparison of fundamental house prices with actual prices indicates that house prices fluctuate more than fundamentally justified, a fact difficult to explain with standard rational agent models. The purpose of this paper is to evaluate to what extent herding behaviour among investors can be seen as an explanation for deviations of house prices from their fundamental value. Design/methodology/approach – To see whether house prices fluctuate more than fundamentally justified, the paper calculates a fundamental house price and compares it to the actual price for seven European and three non‐European OECD countries. Then the paper incorporates herding behaviour into the house‐price model and examines its influence on the development of prices. Findings – A comparison of the fundamental house prices with actual prices indicates that house prices fluctuate more than fundamentally justified. The calibration of the herding model indicates that it can help to explain fluctuations of actual house prices. Originality/value – The incorporation of herding behaviour into a housing model and the calibration of its impact are the main innovations of this paper.

Journal

Journal of European Real Estate ResearchEmerald Publishing

Published: Oct 19, 2012

Keywords: House prices; Bubbles; Herding behaviour; Asset valuation; Europe; Prices; Housing

References