Bursting property bubbles around the world are often cited as the initial trigger of the on-going global recession. This raises the question of whether current real estate prices correspond to economic fundamentals and if not, how much (more) they are likely to fall. This question is highly relevant not only for the housing markets in the United States but for real estate markets in Central and Eastern Europe (CEE) and elsewhere. Property prices more than doubled between 2003 and 2008 in majority of countries in CEE. This course discusses these issues by looking at the determinants of real estate prices. The focus is on the comparison of the US real estate markets with markets in CEE. The objective is to learn standard tools used in real estate economics and to apply them in this region. The real estate market will be viewed both from macroeconomic and microeconomic perspectives. The macroeconomic perspective consists of the market analysis of supply and demand for housing. The latter perspective concentrates on the cash-flows related to a real estate purchase (i.e. a rent) and their impact on price according to a present value model. This also leads to the view of a consumer (as opposed to an investor) who needs to decide between renting and owning an apartment or a house. Tax considerations related to property purchase will be discussed as well. The economics presented in class will have a strong sociological flavor, with a thorough discussion of topics such as the impact of various public housing policies and affordability of housing.
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