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

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  • Ngai, Liwa Rachel
  • Sheedy, Kevin

Abstract

This paper documents the cyclical properties of housing-market variables, which are shown to be volatile, persistent, and highly correlated with each other. Is the observed volatility in these variables due to changes in the speed at which houses are sold or changes in the number of houses that are put up for sale? An inflow-outflow decomposition shows that the inflow rate accounts for almost all of the fluctuations in sales volume. The paper then shows that a search-and-matching model with endogenous moving subject to housing demand shocks performs well in explaining fluctuations in housing-market variables. A housing demand shock induces more moving and increases the supply of houses on the market, thus one housing demand shock replicates three correlated reduced-form shocks that would be needed to match the relative volatilities and correlations among key housing-market variables.

Suggested Citation

  • Ngai, Liwa Rachel & Sheedy, Kevin, 2020. "The Ins and Outs of Selling Houses: Understanding Housing Market Volatility," CEPR Discussion Papers 14331, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14331
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    Cited by:

    1. Libir, Mumi, 2022. "Timing in Asset Markets," MPRA Paper 124729, University Library of Munich, Germany.
    2. Miroslav Gabrovski & Victor Ortego-Marti, 2024. "On the slope of the Beveridge curve in the housing market," Economics Bulletin, AccessEcon, vol. 44(3), pages 948-960.
    3. 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.
    4. Miroslav Gabrovski & Victor Ortego-Marti, 2025. "Home Construction Financing and Search Frictions in the Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 55, January.
    5. Miroslav Gabrovski & Ioannis Kospentaris & Victor Ortego-Marti, 2024. "Endogenous Realtor Intermediation and Housing Market Liquidity," Working Papers 202410, University of California at Riverside, Department of Economics.

    More about this item

    Keywords

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    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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