System dynamics is a research approach which allows to model the behavior of political, social, economic systems. Compared to traditional approaches it allows not only to present main characteristics of selected system, its essential elements but also enables to verify how the mentioned system changes over time. Due to unquestionable advantages of system dynamics modeling it becomes a popular simulation tool of economic processes. The paper presents a possible application of system dynamics in real estate market analysis. Model of residential market and selected scenarios of its behavior are also provided.