Buyers' Propensity-to-Buy in the Housing Industry

Abstract

This article: 1) develops new psychological theories and mathematical models that can explain many of the legal and economic problems that occurred in the US housing industry between 2000 and the present - such as the sub-prime loan problems, predatory lending, mortgage fraud, title defects, rapid/un-warranted price increases and sales fraud; 2) analyzes and identifies the psychological and behavioral biases of first-time homebuyers and repeat home buyers, 3) develop new theories (testable hypothesis) of psychological effects and Biases inherent in the housing purchase/sale process; 4) introduces new theoretical mathematical models for Buyers' Propensity-To-Purchase. This study involves analysis of historical economic trends, critique of existing methods and theories, and development of new theories and development of mathematical models. This article also partly relies on surveys and published empirical research using US macroeconomic and housing data from the 1995-2003 period. At the present time, the models developed in this article cannot be realistically tested empirically because real estate data and price series and psychological effects described in the models (and associated periodic changes in such data or the logarithms of such data) don't fit known distributions and regression techniques.

Keywords: Housing, urban economics, decision analysis, risk, complexity, macro-economics