Time on Market and Demand for Real Estate (Characteristics)

Purpose - Excess supply in real estate markets is easily measured by means of vacancy rates, whereas no such measure exists for excess demand, which is the more interesting situation for investors. Design/methodology/approach - We use a basic search model for describing the influence of supply and demand on time on market. Similar to the literature on equilibrium vacancy rates, we derive equilibrium time on market using a multiple regression approach. Equilibrium time on market is reached when real prices are stable. Time on market of individual real estate units can then be compared to equilibrium time on market for the market segment considered. This allows the deduction of market situation results (excess supply / demand) for market segments, as well as for individual characteristics of real estate units.Findings - We find that time on market serves as a useful indicator for excess supply and demand in the housing market, especially in markets where price setting is subject to regulation. Furthermore it is possible to derive an indication of the actual state of demand for the individual characteristics of real estate units.Research Limitations/Implications: Results are promising, when a clear market typology exists and the characteristics of individual real estate units are well described. Originality/value - Time on market is mostly known as a measure for liquidity. In given (local) markets it can also serve as a measure for excess demand / supply with much more potential for market research than vacancy rates.