Endogeneous housing market model: a deterministic heterogeneous agent approach.

Abstract

Motivated by the complexity of price dynamics during the booms and bursts of housing market, we examine two types of housing market crashes - sudden crashes and smooth crashes - using a deterministic heterogeneous agent model (HAM). By matching simulated price dynamics to real historical data, we show that housing market crashes may have endogenous origins which can be explained by the interactions between heterogeneous agents in the market. Different types of crashes in housing market are results of switching strategies by different groups of agents. We also find that increasing transaction cost in buying and selling of properties can effectively moderate price volatility in housing market.