Modeling the Contagion Effect of Foreclosures Within the Real Estate Market by Use of Agent-Based Modeling and Simulation

Date of Award

Spring 2011

Document Type

Thesis

Degree Name

Master of Science (MS)

Department

Computational Modeling & Simulation Engineering

Program/Concentration

Modeling and Simulation

Committee Director

Andrew J. Collins

Committee Member

Michael J. Seiler

Committee Member

John A. Sokolowski

Call Number for Print

Special Collections LD4331.E58 G36 2011

Abstract

Over the last several years, the US financial and real estate markets have experienced a significant recession. During this downturn, the number of real estate foreclosures rose drastically. Recent studies have empirically demonstrated a reduction in real estate values due to foreclosures. The observed reduction in the average value of real estate properties has been labeled the foreclosure contagion effect. The foreclosure contagion effect impacts healthy neighboring properties that surround the foreclosed property as a function of time and distance.

This study uses an agent-based modeling and simulation (ABMS} approach to explore the contagion effect of foreclosures. For this research, the agents are defined as individual properties that are given rules and attributes which instruct them when and how to act within their environment. The agents use their current state, the environment, and the actions of other property agents as input to their rule sets.

The simulation is studied via parametric analysis to understand the relationships between model variables and their effect on the system. Several emergent behaviors are discovered during the analysis of the simulation results. These emergent behaviors illustrate the relationships between the average property values, foreclosure contagion discount, amount of time foreclosures remain on the market, and interest rates. The findings of this research demonstrate that ABMS is a valid method to study the contagion effect of foreclosures within the real estate market.

Rights

In Copyright. URI: http://rightsstatements.org/vocab/InC/1.0/ This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s).

DOI

10.25777/f9xe-bx24

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