Endogenous rise and collapse of housing price: An agent-based model of the housing market |
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Affiliation: | 1. Stevens Institute of Technology, Financial Engineering Division, 1 Castle Point on Hudson, Hoboken, NJ 03070, United States;2. Office of Financial Research, U.S. Department of the Treasury, 717 14th Street NW, Washington, DC 20220, USA |
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Abstract: | On the basis of interviews with local real estate agents, this study develops an agent-based model of housing market to determine the cause of rise and collapse of US housing price during the years immediately preceding the US financial crisis (2007–2009). We study the key factors affecting housing price volatility, such as lenient financing and speculation. The dynamic simulation findings in the study show in concrete terms how lenient lending practices combined with speculation can lead to increased volatility in housing price, including sharp rises immediately followed by collapses. The exploratory work in this study will contribute to the understanding of the causes of housing bubbles and inform policy decisions. |
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