Catastrophe Theory in Explaining Price Dynamics on the Real Estate Market

Abstract

Abstract The real estate market is an open system, which implies that it is able to exchange signals with other open systems and dynamic systems. The evolution of a market system over time can be described mathematically. If the system's sensitivity threshold to external stimuli is exceeded, it becomes destabilized and moves from a near-balanced state to a state that is far from equilibrium. Those dynamic processes often induce key changes in the system's trajectory of evolution. In search of equilibrium, the system becomes transformed in a process of discontinuous and discrete changes in state variables. The above statement constitutes the research hypothesis in this article. In this study, an attempt was made to develop a mathematical model for visualizing the evolutionary path of the real estate market in the form of continuous changes interrupted by discontinuous changes. The qualitative transformation of the system will be evaluated with the use of the catastrophe theory.