Housing dynamics with speculative expectations

We study a housing pricing model with heterogeneous agents including house buyers, investors and property developers. Each agent maximizes his own objective subject to financial constraints. Without investors in the housing market, the equilibrium housing price is determined by cost and demand. In contrast, if investors exist in the housing market, the equilibrium housing price may persistently deviate from the fundamental level and demonstrate the localization property empirically documented in the real housing market. In addition, if trend followers have very strong extrapolation, then their behavior will bring the market into instantaneous booming following by a long-term recession.