Exploring the Foreclosure Contagion Effect Using Agent-Based Modeling

Exploring the Foreclosure Contagion Effect Using Agent-Based Modeling 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Exploring the Foreclosure Contagion Effect Using Agent-Based Modeling

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Publisher
Springer US
Copyright
Copyright © 2011 by Springer Science+Business Media, LLC
Subject
Economics / Management Science; Regional/Spatial Science; Finance/Investment/Banking
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1007/s11146-011-9324-1
Publisher site
See Article on Publisher Site

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.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: May 15, 2011

References

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