George Mason University - Department of Computational Social Science; George Mason University - Department of Economics; Santa Fe Institute - Economics
Systemic risk must include the housing market, though economists have not generally focused on it. We begin construction of an agent-based model of the housing market with individual data from Washington, DC. Twenty years of success with agent-based models of mortgage prepayments give us hope that such a model could be useful. Preliminary analysis suggests that the housing boom and bust of 1997-2007 was due in large part to changes in leverage rather than interest rates.
Keywords: Agent based models, Housing prices, Boom and bust, Leverage, Interest rates, Foreclosures, Systemic risk
Geanakoplos, John D and Axtell, Robert and Farmer, J. Doyne and Howitt, Peter and Conlee, Benjamin and Goldstein, Jonathan and Hendrey, Matthew and Palmer, Nathan and Yang, Chun-Yi, Getting at Systemic Risk Via an Agent-Based Model of the Housing Market (March 8, 2012). Cowles Foundation Discussion Paper No. 1852, Available at SSRN: https://ssrn.com/abstract=2018375 or http://dx.doi.org/10.2139/ssrn.2018375