Exploring the Foreclosure Contagion Effect Using Agent-Based Modeling

Posted: 22 Jun 2011

See all articles by Marshall Gangel

Marshall Gangel

Old Dominion University

Michael Seiler

College of William and Mary - Finance

Andrew Collins

Old Dominion University

Multiple version iconThere are 2 versions of this paper

Date Written: June 20, 2011

Abstract

Over the last several years, the United States has experienced a significant recession. During this downturn, the number of real estate foreclosures has risen drastically. Recent studies have demonstrated a reduction in property values due to neighboring foreclosures – known as the foreclosure contagion effect. This study uses an agent-based modeling approach to explore market-wide emergent behavior that results from the interconnected property-agent behavior. Specifically, we find that the magnitude of the foreclosure contagion effect is a less powerful cause of eventual market collapse than the time a foreclosed property is allowed to linger on the market. This is important because disposition time is much easier to address from a policymaker perspective than is the strength of the foreclosure contagion effect.

Keywords: foreclosure contagion effect, disposition time, agent-based modeling

Suggested Citation

Gangel, Marshall and Seiler, Michael and Collins, Andrew, Exploring the Foreclosure Contagion Effect Using Agent-Based Modeling (June 20, 2011). Journal of Real Estate Finance and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1868589

Marshall Gangel

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

Michael Seiler (Contact Author)

College of William and Mary - Finance ( email )

VA
United States

HOME PAGE: http://mason.wm.edu/faculty/directory/seiler_m.php

Andrew Collins

Old Dominion University ( email )

Norfolk, VA 23529-0222
United States

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