Endogenous Sources of Volatility in Housing Markets: The Joint Buyer-Seller Problem
AbstractThis paper presents new empirical evidence that internal movement - selling one home and buying another - by existing homeowners within a metropolitan housing market is especially volatile and the main driver of fluctuations in transaction volume over the housing market cycle. We develop a dynamic search equilibrium model that shows that the strong pro-cyclicality of internal movement is driven by the cost of simultaneously holding two homes, which varies endogenously over the cycle. We estimate the model using data on prices, volume, time-on-market, and internal moves drawn from Los Angeles from 1988-2008 and use the fitted model to show that frictions related to the joint buyer-seller problem: (i) substantially amplify booms and busts in the housing market, (ii) create counter-cyclical build-ups of mismatch of existing owners with their homes, and (iii) generate externalities that induce significant welfare loss and excess price volatility.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18980.
Date of creation: Apr 2013
Date of revision:
Note: EFG PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- R0 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location - - - Housing Supply and Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-BAN-2013-04-27 (Banking)
- NEP-DGE-2013-04-27 (Dynamic General Equilibrium)
- NEP-MAC-2013-04-27 (Macroeconomics)
- NEP-URE-2013-04-27 (Urban & Real Estate Economics)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.