CONSUMPTION AND INVESTMENT VALUES IN HOUSING PRICE: A REAL OPTIONS APPROACH

Homeowners can be viewed as the put option holders who sell housing to lenders when price is lower than its mortgage value and houses rises above a certain threshold. On basis of theory investment under uncertainty, we model from perspective houseowners choose either live in their or switch for comfort improvement appreciation. We decompose into consumption values by exploring parameters affecting decision making houseowners. find that proportion increases with volatility market, indicating possible formation bubbles. In addition, utility provided are critical homeowners decide whether houses. The analysis provides policymakers market participants real estate insights estate.