Heterogeneous expectations in the housing market: a sugarscape agent-based model

Abstract

This study examines the influence of heterogeneous expectations between buyers and sellers on housing market cycles. We propose an agent-based model that integrates houses into a Sugarscape model for analyzing housing market dynamics. Our model incorporates spatial factors into pricing by requiring agents to evaluate a property’s value based on its location. Agents have limited information because they base their decision-making on spatial information. We investigate the impact of agents’ visual range and the heterogeneity of their expectations regarding housing prices. Our simulations with different vision levels show that as agents expand their field of vision, the housing market experiences heightened buying competition, thereby increasing both average housing prices and market volatility. Simulation results with different heterogeneity levels show that when people have more homogeneous expectations, the housing market becomes more volatile. As heterogeneity decreases, the volatility of house prices increases more rapidly, implying that agents’ homogeneous expectations reinforce feedback in the system, leading to higher volatility and more complex dynamics.