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Hot and Cold Markets

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  • Robert Novy-Marx
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    Abstract

    This article considers why housing market conditions, including the ratio of buyers to sellers, expected time-to-sale and transaction prices are sensitive to fundamentals. These high sensitivities result from feedback: market participants optimally respond to shocks in a manner that amplifies a shock's initial impact, which in turn elicits further reinforcing responses. For example, a positive demand shock brings more buyers into a market. This improves the bargaining position of sellers, who then sell more quickly, decreasing the stock of sellers in the market. This further increases the relative number of buyers to sellers, amplifying the initial shock. Copyright (c) 2009 American Real Estate and Urban Economics Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6229.2009.00232.x
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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 37 (2009)
    Issue (Month): 1 ()
    Pages: 1-22

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    Handle: RePEc:bla:reesec:v:37:y:2009:i:1:p:1-22

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    Cited by:
    1. Elliot Anenberg, 2012. "Information frictions and housing market dynamics," Finance and Economics Discussion Series 2012-48, Board of Governors of the Federal Reserve System (U.S.).
    2. Gaetano Lisi, 2012. "Matching models and housing markets: the role of the zero-profit condition," EERI Research Paper Series EERI_RP_2012_22, Economics and Econometrics Research Institute (EERI), Brussels.
    3. Paul E. Carrillo & Erik Robert De Wit & William D. Larson, 2012. "Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the U.S. and the Netherlands," Working Papers 2012-11, The George Washington University, Institute for International Economic Policy.
    4. Elliot Anenberg & Edward Kung, 2012. "Estimates of the size and source of price declines due to nearby foreclosures: evidence from San Francisco," Finance and Economics Discussion Series 2012-84, Board of Governors of the Federal Reserve System (U.S.).
    5. Philippe Bracke, 2013. "House Prices and Rents: Micro Evidence from a Matched Dataset in Central London," SERC Discussion Papers 0127, Spatial Economics Research Centre, LSE.

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