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House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework

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  • ANTONIA DÍAZ
  • BELÉN JEREZ

Abstract

We build a search model of the housing market which captures the illiquidity of housing assets. In this model, households experience idiosyncratic shocks over time which affect how much they value their residence (e.g. the location of their job could change). When hit by a shock, households become mismatched and seek to buy a new home. Yet they take time to locate an appropriate housing unit and to sell their current home. Competitive forces are present in the housing market since, by posting lower prices, sellers increase the average number of buyer visits they get and sell their property faster. We characterize a stationary equilibrium for a fixed housing stock. We then calibrate a stochastic version of the model to reproduce selected aggregate statistics of the U.S. economy. The model is consistent with the high volatility of prices, sales and average time on the market, the positive correlation of prices and sales, and the negative correlation of prices and average time on the market observed in the data. This is not the case when we consider the perfectly competitive version of the model

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 54 (2013)
Issue (Month): (08)
Pages: 837-872

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Handle: RePEc:wly:iecrev:v:54:y:2013:i::p:837-872

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References

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  1. Antonia Diaz & Maria J. Luengo-Prado, 2006. "On The User Cost And Homeownership," Economics Working Papers we065421, Universidad Carlos III, Departamento de Economía.
  2. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  3. David Genesove & Christopher J. Mayer, 1993. "Equity and time to sale in the real estate market," Working Papers 93-6, Federal Reserve Bank of Boston.
  4. Davis, Morris & Heathcote, Jonathan, 2001. "Housing and the Business Cycle," Working Papers 01-09, Duke University, Department of Economics.
  5. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
  6. James Albrecht & Axel Anderson & Eric Smith & Susan Vroman, 2007. "Opportunistic Matching In The Housing Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 641-664, 05.
  7. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  8. John Krainer, 2008. "Falling house prices and rising time on the market," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar21.
  9. Michael A. Arnold, 1999. "Search, Bargaining and Optimal Asking Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 453-481.
  10. Antonio M. Merlo & François Ortalo-Magné, 2002. "Bargaining over Residential Real Estate: Evidence from England," CESifo Working Paper Series 778, CESifo Group Munich.
  11. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
  12. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-92, December.
  13. Abdullah Yavaş, 1992. "A Simple Search and Bargaining Model of Real Estate Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 533-548.
  14. Makoto Nakajima, 2005. "Rising Earnings Instability and Prices of Housing and Financial Assets," 2005 Meeting Papers 211, Society for Economic Dynamics.
  15. Williams, Joseph T, 1995. "Pricing Real Assets with Costly Search," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 55-90.
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Citations

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Cited by:
  1. Charles Ka Yui Leung & Chung-Yi Tse, 2012. "Flippers in Housing Market Search," 2012 Meeting Papers 434, Society for Economic Dynamics.
  2. Susan Vroman & Pieter Gautier & James Albrecht, 2007. "Directed Search in the Housing Market," 2007 Meeting Papers 372, Society for Economic Dynamics.
  3. Derek G. Stacey, 2012. "Information, Commitment, and Separation in Illiquid Housing Markets," Working Papers 1289, Queen's University, Department of Economics.
  4. Antonia Díaz & Belén Jerez, 2010. "House prices, sales, and time on the market : a search-theoretic framework (Supplementary material)," Economics Working Papers we1034, Universidad Carlos III, Departamento de Economía.
  5. Masanori Kashiwagi, . "Sunspots and Self-Fulfilling Beliefs in the U.S. Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  6. de Wit, Erik R. & Englund, Peter & Francke, Marc K., 2013. "Price and transaction volume in the Dutch housing market," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 220-241.
  7. Conefrey, Thomas & Whelan, Karl, 2012. "Supply, Demand and Prices in the US Housing Market," Research Technical Papers 08/RT/12, Central Bank of Ireland.
  8. Daniel Cooper & Rüdiger Bachmann, 2012. "Cyclical and sectoral transitions in the U.S. housing market," Working Papers 12-17, Federal Reserve Bank of Boston.
  9. Brian M. Peterson, 2012. "Fooled by Search: Housing Prices, Turnover and Bubbles," Working Papers 12-3, Bank of Canada.
  10. Elliot Anenberg & Patrick Bayer, 2013. "Endogenous sources of volatility in housing markets: the joint buyer-seller problem," Finance and Economics Discussion Series 2013-60, Board of Governors of the Federal Reserve System (U.S.).
  11. Gaetano Lisi, 2013. "On the Functional Form of the Hedonic Price Function: A Matching-theoretic Model and Empirical Evidence," International Real Estate Review, Asian Real Estate Society, vol. 16(2), pages 189-207.
  12. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2012. "Search, Liquidity and the Dynamics of House Prices and Construction," Working Papers 1276, Queen's University, Department of Economics.

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