The role of price expectations in the UK housing market

Abstract

The objective of this paper is to explain and derive the non-linear, S-shaped diffusion path of price expectations and provide a forecasting model, three months ahead with the implications assessed. Bounded rationality means that various agents in the U.K. housing market, such as buyers,sellers, estate agents and chartered surveyors, play differing rôles in the overall formulation of expectations of prices. This is analogous to the logistic effect with a diffusion path of dis-equilibrium to the end-point of equilibrium. The empirical analysis makes use of the forwarding-looking price expectations data published by Royal Institution of Chartered Surveyors (RICS) with the actual observations produced by Mortgage lenders, the Halifax and the Nationwide.