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Housing prices and credit constraints in competitive search

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  • Rincón-Zapatero, Juan Pablo
  • Jerez Garcia-Vaquero, Maria Belen
  • Diaz Rodriguez, Antonia

Abstract

We embed a competitive search model of the real estate market into a heterogeneous agentsetting where hoeholds face credit constraints and idiosyncratic turnover shocks. Householdscan accumulate a risk-free asset to build a down payment and to smooth non-housing consumption.There is an inelastic supply of identical homes. The model is "block recursive". Inequilibrium wealthier home buyers sort into submarkets with higher prices and shorter buyingtimes. We identify a novel amplification mechanism, arising from sorting, by which demandshocks can substantially affect housing prices. In particular, lowering down payment requirementsinduces entry of new buyers in the market and higher asset accumulation by currentsearchers, as these agents target more expensive (less congested) submarkets. This affects thedistribution of prices and trading probabilities, and thereby the wealth distribution. Our quantitativeresults suggest that the effects on the long-run level and dispersion of housing pricescan be significant.

Suggested Citation

  • Rincón-Zapatero, Juan Pablo & Jerez Garcia-Vaquero, Maria Belen & Diaz Rodriguez, Antonia, 2020. "Housing prices and credit constraints in competitive search," UC3M Working papers. Economics 30623, Universidad Carlos III de Madrid. Departamento de Economía.
  • Handle: RePEc:cte:werepe:30623
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    1. Housing prices and credit constraints in competitive search
      by Christian Zimmermann in NEP-DGE blog on 2020-07-24 20:24:39

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    Keywords

    Sorting;

    JEL classification:

    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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