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Supply, Demand and Prices in the US Housing Market

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  • Conefrey, Thomas

    (Central Bank of Ireland)

  • Whelan, Karl

    (University College Dublin)

Abstract

The slowdown in the US economy in 2008, and in the housing market in particular, has been accom- panied by a sharp fall in house prices and a glut of homes for sale on the market. While the idea that this overhang of dwellings for sale should place downward pressure on house prices is intuitive, little empirical work has been done in this area. This paper explicitly models the relationship between changes in house prices and various measures of housing supply. The results show that months supply of new homes places greater downward pressure on house prices that the months supply of existing homes. We build a small simulation model to examine the evolution of the housing market.

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Bibliographic Info

Paper provided by Central Bank of Ireland in its series Research Technical Papers with number 08/RT/12.

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Date of creation: Dec 2012
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Handle: RePEc:cbi:wpaper:08/rt/12

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Keywords: Housing market; supply; prices;

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  1. 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.
  2. Pissarides, Christopher A, 1985. "Short-run Equilibrium Dynamics of Unemployment Vacancies, and Real Wages," American Economic Review, American Economic Association, vol. 75(4), pages 676-90, September.
  3. Zuehlke, Thomas W, 1987. "Duration Dependence in the Housing Market," The Review of Economics and Statistics, MIT Press, vol. 69(4), pages 701-04, November.
  4. Antonia Díaz & Belén Jerez, 2010. "House prices, sales, and time on the market : a search-theoretic framework," Economics Working Papers we1033, Universidad Carlos III, Departamento de Economía.
  5. Nathalie Girouard & Mike Kennedy & Paul van den Noord & Christophe André, 2006. "Recent House Price Developments: The Role of Fundamentals," OECD Economics Department Working Papers 475, OECD Publishing.
  6. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
  7. Williams, Joseph T, 1995. "Pricing Real Assets with Costly Search," Review of Financial Studies, Society for Financial Studies, vol. 8(1), pages 55-90.
  8. Vladimir Klyuev, 2008. "What Goes Up Must Come Down? House Price Dynamics in the United States," IMF Working Papers 08/187, International Monetary Fund.
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