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The Ins and Outs of Selling Houses: Understanding Housing-Market Volatility

Author

Listed:
  • L. Rachel Ngai

    (London School of Economics (LSE)
    Centre for Macroeconomics (CFM)
    Centre for Economic Policy Research (CEPR))

  • Kevin D. Sheedy

    (London School of Economics (LSE)
    Centre for Macroeconomics (CFM))

Abstract

The housing market is subject to search frictions in buying and selling houses. This paper documents the role of inflows (new listings) and outflows (sales) in explaining the volatility and co-movement of housing-market variables. An ‘ins versus outs’ decomposition shows that both inflows and outflows are quantitatively important in understanding fluctuations in houses for sale. The correlations between sales, prices, new listings, and time-to-sell are shown to be stable over time, while their correlations with houses for sale are found to be time varying. Using a housing-market model with endogenous inflows and outflows, a single persistent housing-demand shock can explain all the patterns of co-movement among variables except for houses for sale. Consistent with the data, the model does not predict there is an invariant structural relationship between houses for sale and other variables — the correlation depends on the source and persistence of shocks.

Suggested Citation

  • L. Rachel Ngai & Kevin D. Sheedy, 2022. "The Ins and Outs of Selling Houses: Understanding Housing-Market Volatility," Discussion Papers 2213, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2213
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    References listed on IDEAS

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    Cited by:

    1. Rangan Gupta & Damien Moodley, 2023. "Housing Search Activity and Quantiles-Based Predictability of Housing Price Movements in the United States," Working Papers 202335, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    housing-market cyclicality; stocks and flows; search frictions;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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