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House Price Momentum and Strategic Complementarity

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  • Adam M. Guren

Abstract

House prices exhibit substantially more momentum, positive autocorrelation in price changes, than existing theories can explain. I introduce an amplification mechanism to reconcile this discrepancy. Sellers do not set a unilaterally high or low list price because they face a concave demand curve: increasing the price of an above-average-priced house rapidly reduces its sale probability, but cutting the price of a below-average-priced house only slightly improves its sale probability. The resulting strategic complementarity amplifies frictions because sellers gradually adjust their price to stay near average. I provide empirical evidence for concave demand using a quantitative search model that amplifies momentum two- to threefold.

Suggested Citation

  • Adam M. Guren, 2018. "House Price Momentum and Strategic Complementarity," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 1172-1218.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/697207
    DOI: 10.1086/697207
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