An important aspect of transparency is identifying assumptions, which typically means what is left out of the model. Here are some assumptions that we are starting with in this model:
- Don't model who owns a rented home
- Don't model change in rental rates during tenure of renter
- Assume sufficient supply of rentals
- No family owns more than one home
- Only one mortgage per home
- Ignore commercial real estate
- We’ll ignore growth in number of households and new home construction
- Ignore realtor’s fees when buying & selling a home
- Assume no “interest only” or “negative amortization” loans.
- Price appraisals not implemented yet
- Not modeling cost of marketing a mortgage to buyers/refinancers
- Assume no fraud (borrowers lying to lenders)
- Terms for a pre-approved mortgage do not vary while buyer is shopping for a house.
- All savings accounts can be withdrawn from at any time
- A single good is produced, (though it has variable consumption)
- No supply chain
- Ignore accounts receivable and payable
- Stock price does not consider future earnings potential
- No Taxes
Building in Steps
The full model will be rather complex—but this does not mean that it will be opaque. To help reduce the complexity, we will start simple and add to the model in steps. Each step will build on the previous step with an incremental amount of functionality. These steps are described in the next post.