IDEAS home Printed from https://ideas.repec.org/a/kap/jrefec/v46y2013i2p339-354.html
   My bibliography  Save this article

Exploring the Foreclosure Contagion Effect Using Agent-Based Modeling

Author

Listed:
  • Marshall Gangel
  • Michael Seiler
  • Andrew Collins

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. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Marshall Gangel & Michael Seiler & Andrew Collins, 2013. "Exploring the Foreclosure Contagion Effect Using Agent-Based Modeling," The Journal of Real Estate Finance and Economics, Springer, vol. 46(2), pages 339-354, February.
    • Handle: RePEc:kap:jrefec:v:46:y:2013:i:2:p:339-354
    DOI: 10.1007/s11146-011-9324-1
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s11146-011-9324-1
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s11146-011-9324-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Einiö, Mikko & Kaustia, Markku & Puttonen, Vesa, 2008. "Price setting and the reluctance to realize losses in apartment markets," Journal of Economic Psychology, Elsevier, vol. 29(1), pages 19-34, February.
    2. Sheharyar Bokhari & David Geltner, 2011. "Loss Aversion and Anchoring in Commercial Real Estate Pricing: Empirical Evidence and Price Index Implications," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(4), pages 635-670, December.
    3. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Moral and Social Constraints to Strategic Default on Mortgages," Economics Working Papers ECO2009/27, European University Institute.
    4. repec:bla:jfinan:v:53:y:1998:i:5:p:1775-1798 is not listed on IDEAS
    5. Karen M. Pence, 2006. "Foreclosing on Opportunity: State Laws and Mortgage Credit," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 177-182, February.
    6. Michael Seiler & Vicky Seiler & Stefan Traub & David Harrison, 2008. "Regret Aversion and False Reference Points in Residential Real Estate," Journal of Real Estate Research, Taylor & Francis Journals, vol. 30(4), pages 461-474, January.
    7. William H. Rogers & William Winter, 2009. "The Impact of Foreclosures on Neighboring Housing Sales," Journal of Real Estate Research, American Real Estate Society, vol. 31(4), pages 455-480.
    8. Harding, John P. & Rosenblatt, Eric & Yao, Vincent W., 2009. "The contagion effect of foreclosed properties," Journal of Urban Economics, Elsevier, vol. 66(3), pages 164-178, November.
    9. Shefrin, Hersh & Statman, Meir, 1985. "The Disposition to Sell Winners Too Early and Ride Losers Too Long: Theory and Evidence," Journal of Finance, American Finance Association, vol. 40(3), pages 777-790, July.
    10. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1233-1260.
    11. Zhenguo Lin & Eric Rosenblatt & Vincent Yao, 2009. "Spillover Effects of Foreclosures on Neighborhood Property Values," The Journal of Real Estate Finance and Economics, Springer, vol. 38(4), pages 387-407, May.
    12. Schelling, Thomas C, 1969. "Models of Segregation," American Economic Review, American Economic Association, vol. 59(2), pages 488-493, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Seiler, Michael J., 2015. "The role of informational uncertainty in the decision to strategically default," Journal of Housing Economics, Elsevier, vol. 27(C), pages 49-59.
    2. Marcus T. Allen & Justin D. Benefield & Christopher L. Cain & Norman Maynard, 2024. "Distressed Property Sales: Differences and Similarities Across Types of Distress," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 318-353, February.
    3. Peter Chinloy & William Hardin & Zhonghua Wu, 2017. "Foreclosure, REO, and Market Sales in Residential Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 54(2), pages 188-215, February.
    4. Jeffrey P. Cohen & Cletus C. Coughlin & Vincent W. Yao, 2016. "Sales of Distressed Residential Property: What Have We Learned from Recent Research?," Review, Federal Reserve Bank of St. Louis, vol. 98(3), pages 159-188.
    5. repec:spo:wpmain:info:hdl:2441/dcditnq6282sbu1u151qe5p7f is not listed on IDEAS
    6. Giorgio Fagiolo & Andrea Roventini, 2017. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(1), pages 1-1.
    7. Michael J. Seiler, 2017. "Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(1), pages 204-230, February.
    8. Michael J. Seiler, 2016. "The Perceived Moral Reprehensibility of Strategic Mortgage Default," Framed Field Experiments 00622, The Field Experiments Website.
    9. Firas Zebian & Richard Dusansky, 2015. "Housing Tax Reform and Foreclosure Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 51(3), pages 351-364, October.
    10. repec:hal:spmain:info:hdl:2441/dcditnq6282sbu1u151qe5p7f is not listed on IDEAS
    11. Giorgio Fagiolo & Andrea Roventini, 2016. "Macroeconomic Policy in DGSE and Agent-Based Models Redux," Working Papers hal-03459348, HAL.
    12. Ying Huang & Ronald W. Spahr & Mark A. Sunderman, 2020. "The Impact of Default and Foreclosure on Housing Values: Rings Vs. Neighborhoods Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 60(3), pages 338-374, April.
    13. Thomas W. Sanchez, 2021. "Exploring the Relationship between Combined Household Housing and Transportation Costs and Regional Economic Activity in Virginia," Land, MDPI, vol. 10(7), pages 1-10, July.
    14. G. B. Korovin, 2020. "Architecture of the agent-based model for the region’s industrial complex digital transformation," Journal of New Economy, Ural State University of Economics, vol. 21(3), pages 158-174, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John P. Harding & Jing Li & Stuart S. Rosenthal & Xirui Zhang, 2022. "Forced moves and home maintenance: The amplifying effects of mortgage payment burden on underwater homeowners," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(2), pages 498-533, June.
    2. Carolin Fritzsche & Lars Vandrei, 2018. "Causes of Vacancies in the Housing Market – A Literature Review," ifo Working Paper Series 258, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Lamorgese, Andrea R. & Pellegrino, Dario, 2022. "Loss aversion in housing appraisal: Evidence from Italian homeowners," Journal of Housing Economics, Elsevier, vol. 56(C).
    4. Andrea Lamorgese & Dario Pellegrino, 2019. "Loss aversion in housing price appraisals among Italian homeowners," Temi di discussione (Economic working papers) 1248, Bank of Italy, Economic Research and International Relations Area.
    5. Chan, Sewin & Gedal, Michael & Been, Vicki & Haughwout, Andrew, 2013. "The role of neighborhood characteristics in mortgage default risk: Evidence from New York City," Journal of Housing Economics, Elsevier, vol. 22(2), pages 100-118.
    6. Akshita Singh & Shailendra Kumar & Utkarsh Goel & Amar Johri, 2023. "Behavioural biases in real estate investment: a literature review and future research agenda," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-17, December.
    7. Simlai, Prodosh, 2019. "Subprime credit, idiosyncratic risk, and foreclosures," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 175-189.
    8. Ling Li & Wayne Xinwei Wan, 2024. "The Effect of Expected Losses on the Hong Kong Property Market," The Journal of Real Estate Finance and Economics, Springer, vol. 68(4), pages 654-683, May.
    9. Sadayuki, Taisuke, 2018. "Measuring the spatial effect of multiple sites: An application to housing rent and public transportation in Tokyo, Japan," Regional Science and Urban Economics, Elsevier, vol. 70(C), pages 155-173.
    10. Patrick Krieger & Carsten Lausberg, 2021. "Entscheidungen, Entscheidungsfindung und Entscheidungsunterstützung in der Immobilienwirtschaft: Eine systematische Literaturübersicht [Decisions, decision-making and decisions support systems in r," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 7(1), pages 1-33, April.
    11. Weiran Huang & Ashlyn Nelson & Stephen L. Ross, 2018. "Foreclosure Spillovers within Broad Neighborhoods," Working Papers 2018-096, Human Capital and Economic Opportunity Working Group.
    12. Michael J. Seiler, 2017. "Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(1), pages 204-230, February.
    13. Calabrese, Raffaella & Crook, Jonathan, 2020. "Spatial contagion in mortgage defaults: A spatial dynamic survival model with time and space varying coefficients," European Journal of Operational Research, Elsevier, vol. 287(2), pages 749-761.
    14. Seiler, Michael J., 2015. "The role of informational uncertainty in the decision to strategically default," Journal of Housing Economics, Elsevier, vol. 27(C), pages 49-59.
    15. Mr. Jochen R. Andritzky, 2014. "Resolving Residential Mortgage Distress: Time to Modify?," IMF Working Papers 2014/226, International Monetary Fund.
    16. Kenneth P. Brevoort & Cheryl R. Cooper, 2013. "Foreclosure's Wake: The Credit Experiences of Individuals Following Foreclosure," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 41(4), pages 747-792, December.
    17. Paul Carrillo, 2013. "Testing for Fraud in the Residential Mortgage Market: How Much Did Early-Payment-Defaults Overpay for Housing?," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 36-64, July.
    18. Janet Currie & Erdal Tekin, 2015. "Is There a Link between Foreclosure and Health?," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 63-94, February.
    19. Marco Pleßner, 2017. "The disposition effect: a survey," Management Review Quarterly, Springer, vol. 67(1), pages 1-30, February.
    20. Michael Seiler, 2014. "The Effect of Perceived Lender Characteristics and Market Conditions on Strategic Mortgage Defaults," The Journal of Real Estate Finance and Economics, Springer, vol. 48(2), pages 256-270, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jrefec:v:46:y:2013:i:2:p:339-354. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.