Endogenous rise and collapse of housing prices

Jiaqi Ge

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

Abstract: Based on interviews with local real estate agents, this paper develops a spatial model of the housing market to help us understand what caused the US housing to rise and collapse. We study key factors for their role in the rise and collapse of housing prices, such as speculation and lenient financing. The dynamic simulation findings in the paper demonstrate in concrete terms how lenient bank lending practices combined with speculation can lead to increased volatility in housing prices, including sharp rises followed by sudden collapses. The exploratory work in this paper will help us understand housing price volatilities and make policy advice.

Date: 2013-12-08
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