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Hot and cold seasons in the housing markets

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  • L.Rachel Ngai
  • Silvana Tenreyro

Abstract

In the U.K., every year during the second and third quarters (the “hot season”), regional housing markets experience sharp above-trend increases in (quality-adjusted) prices and in the number of transactions. During the fourth and first quarters (the “cold season”), housing prices and the number of transactions fall below trend. A similar seasonal cycle for transactions is observed in other developed countries. Housing prices, however, do not necessarily follow a seasonal pattern in all of them; in particular, in the U.S., while transactions are highly seasonal, prices display no seasonality. We discuss why the traditional asset-pricing approach to the housing market fails at explaining seasonal booms and busts and present a search model that can quantitatively mimic the seasonal fluctuations in transactions and prices in both the U.K. and the U.S. The model features a “thick-market” externality that can generate substantial differences in the number of transactions across seasons. The existence and extent of seasonality in prices depend on the distribution of market power between buyers and sellers. As a by-product, the model sheds new light on the mechanisms governing fluctuations in housing markets and it can be adapted to study lower-frequency movements.

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File URL: http://eprints.lse.ac.uk/4994/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 4994.

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Length: 55 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:ehl:lserod:4994

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Citations

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Cited by:
  1. Genesove, David & Han, Lu, 2010. "Search and Matching in the Housing Market," CEPR Discussion Papers 7777, C.E.P.R. Discussion Papers.
  2. Selcuk, Cemil, 2012. "Seasonal cycles in the housing market," MPRA Paper 36225, University Library of Munich, Germany.
  3. James Albrecht & Pieter A. Gautier & Susan Vroman, 2010. "Directed Search in the Housing Market," Tinbergen Institute Discussion Papers 10-005/3, Tinbergen Institute.
  4. Yu Zhu & Randall Wright & Chao He, 2013. "Housing and Liquidity," 2013 Meeting Papers 168, Society for Economic Dynamics.
  5. Selcuk, Cemil, 2010. "Motivated Sellers in the Housing Market," Cardiff Economics Working Papers E2010/2, Cardiff University, Cardiff Business School, Economics Section.
  6. Bracke, Philippe, 2013. "How long do housing cycles last? A duration analysis for 19 OECD countries," Journal of Housing Economics, Elsevier, vol. 22(3), pages 213-230.
  7. H. Cagri Akkoyun & Yavuz Arslan & Birol Kanik, 2012. "Housing Prices and Transaction Volume," Working Papers 1211, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  8. Masanori Kashiwagi, . "Sunspots and Self-Fulfilling Beliefs in the U.S. Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
  9. 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.
  10. S. Boragan Aruoba & Morris A. Davis & Randall Wright, 2012. "Homework in Monetary Economics: Inflation, Home Production, and the Production of Homes," NBER Working Papers 18276, National Bureau of Economic Research, Inc.
  11. Alessi, Lucia & Detken, Carsten, 2011. "Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity," European Journal of Political Economy, Elsevier, vol. 27(3), pages 520-533, September.

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