Real Estate Insights: on equilibrium – a modest defence

Abstract

Purpose To examine the concept of equilibrium in the context of real estate markets and the insights that the concept brings to the modelling of adjustment processes. Design/methodology/approach The paper proceeds by introspection. Findings Even if real estate markets' normal state is disequilibrium, an underlying model of market processes that seek to restore those markets to balance provides invaluable insights into the way property markets respond to shocks. This is not to deny the path dependency of market outcomes. Research limitations/implications In the context of market economies, discarding equilibrium principles risks misunderstanding market dynamics, for all the noise that behavioural anomalies bring. Practical implications Appreciation of the adjustment processes can help market participants avoid over-reaction to short-run and noisy signals. Markets operate in aggregate and adjustment processes may be long-term but those processes drive market dynamics. Social implications Society would be better if markets avoided over-reacting to noisy short-run signals. Originality/value This is for others to judge.