Endogenous formation and collapse of housing bubbles

Jiaqi Ge

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This paper develops an agent-based spatial model of the housing market. This paper develops an analytical framework and an agent-based spatial model of the housing market. We show that low down payment requirement will cause housing bubbles. With low down payment requirement, a small decrease in the housing price will cause mortgage rate to rise in response to the lowering value of collateral . The rising mortgage rate will further suppress demand and turn the market into a downward spiral. The agent-base model is based on our interviews with local real estate agents. The exploratory work in this paper will help us better understand the housing market, give policy advice, and eventually prevent another damaging housing bubble.

Date: 2013-07-08
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