1 Yale Universtiy, Department of Economics, 30 Hillhouse Avenue, New Haven, CT 06520, Santa Fe Institute, and Ellington Management Group. · 2 George Mason University, Department of Computational Social Science, 4400 University Drive, Fairfax, VA 22030. · 3 Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, NM 87501. · 4 Brown University, Department of Economics, Providence, RI 02912.
Abstract
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.