Who Creates the Housing Bubble? An Agent-Based Study

This paper develops an agent-based spatial model of the housing market. Real estate is many families’ single biggest asset. It is also widely held by financial institutions, in the form of mortgage based securities. As a result, avoiding extreme housing price volatility is crucial for maintaining financial stability of the nation. The housing market is very unique: it is thin, highly regulated, highly leveraged, involves speculative behaviors, and exhibits spatial correlations. To this day, there are few housing market models that take into account all of these complications. In this paper, we propose an agent-based spatial model of the U.S. housing market. The exploratory work in this paper will enable us to better understand the housing market, make policy advice, and eventually prevent another damaging housing bubble.