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Flipping in the housing market

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  • Leung, Charles Ka Yui
  • Tse, Chung-Yi

Abstract

We add arbitraging middlemen – investors who attempt to profit from buying low and selling high – to a canonical housing market search model. Flipping tends to take place in sluggish and tight, but not in moderate, markets. To follow is the possibility of multiple equilibria. In one equilibrium, most, if not all, transactions are intermediated, resulting in rapid turnover, a high vacancy rate, and high housing prices. In another equilibrium, few houses are bought and sold by middlemen. Turnover is slow, few houses are vacant, and prices are moderate. Moreover, flippers can enter and exit en masse in response to the smallest interest rate shock. The housing market can then be intrinsically unstable even when all flippers are akin to the arbitraging middlemen in classical finance theory. In speeding up turnover, the flipping that takes place in a sluggish and illiquid market tends to be socially beneficial. The flipping that takes place in a tight and liquid market can be wasteful as the efficiency gain from any faster turnover is unlikely to be large enough to offset the loss from more houses being left vacant in the hands of flippers.

Suggested Citation

  • Leung, Charles Ka Yui & Tse, Chung-Yi, 2017. "Flipping in the housing market," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 232-263.
  • Handle: RePEc:eee:dyncon:v:76:y:2017:i:c:p:232-263
    DOI: 10.1016/j.jedc.2017.01.003
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    Cited by:

    1. Leung, Charles Ka Yui & Ng, Joe Cho Yiu, 2018. "Macro Aspects of Housing," Globalization and Monetary Policy Institute Working Paper 340, Federal Reserve Bank of Dallas.
    2. Leung, Charles Ka Yui & Tse, Chung-Yi, 2017. "Flipping in the housing market," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 232-263.
    3. Leung, Charles Ka Yui & Tse, Chung-Yi, 2017. "Flipping the Housing Market," Globalization and Monetary Policy Institute Working Paper 301, Federal Reserve Bank of Dallas.
    4. Charles Ka Yui LEUNG & Joe Cho Yiu NG, "undated". "Macro Aspects of Housing," ISER Discussion Paper 1030, Institute of Social and Economic Research, Osaka University.

    More about this item

    Keywords

    Search and matching; Housing market; Liquidity; Flippers;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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