Modelling the real estate market dynamics with catastrophe theory

The paper concerns the description of the issues related to the dynamics of the real estate market in periods of sudden, unexpected changes in real estate prices, on positive or negative direction, which were observed in the last decade in many European countries and in the United States. Disturbances of stable trends resulted from the global macroeconomic instability, which indirectly affected the behavior of unstable real estate markets. When such phenomena occur in many real estate markets, it suggests that the markets take on the characteristics of structurally unstable systems, which are influenced by small changes in control parameters suffer sudden discontinuous changes in its state. The essential problem is the need to define and give a new meaning for periods of stable and unstable real estate market development, giving large amounts of importance to discontinuous changes. The research would make it possible to model the hardly explored field of sudden changes in the real estate market in order to reveal the edge of discontinuity. The scientific hypothesis is that the periods of sudden price changes reflect an crucial feature of the real estate market, and they constitute the turning points of its development. The evolution path of the real estate market under the influence of the control parameters runs mostly over the areas of long-term stability, and occasionally enters into the instability area According to the authors of the paper the current, classical approximate methods used in the analysis of long-term trends, do not give the right results with discontinuous changes in real estate prices. The proper way to model abrupt price changes is the theory of discontinuous change, also known as the theory of morphogenesis, or the catastrophe theory. The proposed research is interdisciplinary, because we are using the methods and theories from mathematics, physics and natural sciences to understand the mechanisms of real estate prices.