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Hot and Cold Markets

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  • Robert Novy-Marx

Abstract

This article considers why housing market conditions, including the ratio of buyers to sellers, expected time-to-sale and transaction prices are sensitive to fundamentals. These high sensitivities result from feedback: market participants optimally respond to shocks in a manner that amplifies a shock's initial impact, which in turn elicits further reinforcing responses. For example, a positive demand shock brings more buyers into a market. This improves the bargaining position of sellers, who then sell more quickly, decreasing the stock of sellers in the market. This further increases the relative number of buyers to sellers, amplifying the initial shock. Copyright (c) 2009 American Real Estate and Urban Economics Association.

Suggested Citation

  • Robert Novy-Marx, 2009. "Hot and Cold Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(1), pages 1-22.
  • Handle: RePEc:bla:reesec:v:37:y:2009:i:1:p:1-22
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    References listed on IDEAS

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    11. Aizcorbe, Ana M., 2014. "A Practical Guide to Price Index and Hedonic Techniques," OUP Catalogue, Oxford University Press, number 9780198702429.
    12. Jim Clayton, 1998. "Further Evidence on Real Estate Market Efficiency," Journal of Real Estate Research, American Real Estate Society, vol. 15(1), pages 41-58.
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    14. David Genesove, 2003. "The Nominal Rigidity of Apartment Rents," The Review of Economics and Statistics, MIT Press, pages 844-853.
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