PRICES AND PRICE EXPECTATIONS IN THE MARKET FOR OWNER OCCUPIED HOUSING

Many researchers working with analyses and predictions of the prices o f owner occupied houses have found that econometric models based on 'e conomic fundamentals' fail to explain more than a fraction of the move ments of the prices. This is especially the case in periods of rapid c hange. Often, this failure is attributed to psychological factors such as price expectations among the market participants. This paper compa res observed market prices and equilibrium prices under three differen t hypotheses of the formation of price expectations. The results from the investigations indicate that price expectations are formed through an extrapolation of the trend in house prices rather than through a p rocess based on knowledge of the structure of the housing market, econ omic fundamentals and demographic trends.