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Endogenous Formation and Collapse Of Housing Bubbles

  • Jiaqi Ge
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    This paper develops an analytical framework and an agent-based spatial model of the housing market. We show that low down payment requirement will cause housing bubbles. With low down payment requirement, a small decrease in the housing price will cause mortgage rate to rise in response to the lowering value of collateral . The rising mortgage rate will further suppress demand and turn the market into a downward spiral. The agent-base model is based on our interviews with local real estate agents. The exploratory work in this paper will help us better understand the housing market, give policy advice, and eventually prevent another damaging housing bubble.

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    File URL: http://www.econ.iastate.edu/sites/default/files/publications/papers/p16277-2013-07-08.pdf
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    Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 36277.

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    Date of creation: 08 Jul 2013
    Date of revision:
    Handle: RePEc:isu:genres:36277
    Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
    Phone: +1 515.294.6741
    Fax: +1 515.294.0221
    Web page: http://www.econ.iastate.edu
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    1. Glaeser, Edward & Saiz, Albert & Gyourko, Joseph, 2008. "Housing Supply and Housing Bubbles," Scholarly Articles 2962640, Harvard University Department of Economics.
    2. Christopher Mayer, 2011. "Housing Bubbles: A Survey," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 559-577, 09.
    3. Sheri Markose & Simone Giansante & Mateusz Gatkowski & Ali Rais Shaghaghi, 2010. "Too Interconnected To Fail: Financial Contagion and Systemic Risk In Network Model of CDS and Other Credit Enhancement Obligations of US Banks," Working Papers 033, COMISEF.
    4. Goodman, Allen C. & Thibodeau, Thomas G., 2008. "Where are the speculative bubbles in US housing markets?," Journal of Housing Economics, Elsevier, vol. 17(2), pages 117-137, June.
    5. Mary Riddel, 2011. "Are Housing Bubbles Contagious? A Case Study of Las Vegas and Los Angeles Home Prices," Land Economics, University of Wisconsin Press, vol. 87(1), pages 126-144.
    6. Jan K. Brueckner & Paul S. Calem & Leonard I. Nakamura, 2011. "Subprime mortgages and the housing bubble," Working Papers 11-12, Federal Reserve Bank of Philadelphia.
    7. John Geanakoplos, 2009. "The Leverage Cycle," Cowles Foundation Discussion Papers 1715, Cowles Foundation for Research in Economics, Yale University.
    8. William N. Goetzmann & Liang Peng & Jacqueline Yen, 2009. "The Subprime Crisis and House Price Appreciation," NBER Working Papers 15334, National Bureau of Economic Research, Inc.
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