Question

Explain the “adaptive” model of the housing market.

Answer 1

The adaptive model in the housing market reflects positive house price shock expectation in the case of one period is followed by the increase in the price in the subsequent periods. The time gap between the start of construction of a building and completion of the construction of the building has an expectation of a rise in the price significantly that can generate the inflation situation in the housing market during the construction of the building. However, the completed building can reduce the inflation in the housing market due to meeting the demand with the additional developed building. The adaptive model is an advocate of balancing the price in the housing market by the development of the buildings. The prices in the housing market cannot be stable for a long time due to the difference of time between the start of building contraction and completion of the construction of the building.

This model reflects the expectation of changes in the price according to future prices based on the futuristic aspects that can take place in the housing market. There is a maximum limit of spending for the house so it has a certain limitation in the information in the housing price all the time. No one can expend unlimited funds in the housing market. The forecast for housing price is adaptive for evaluation of inflation range in the housing market. The housing market is used for both the housing needs and investment purpose but the budget constraints of the investors provide adaptive forecasts of inflation in the prices in the housing market.