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.
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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
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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, Spatial Production Analysis, and Firm Location
- R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial 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)
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