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Equity and time to sale in the real estate market

Author

Listed:
  • David Genesove
  • Christopher J. Mayer

Abstract

Estimates from the Boston condominium market show that owners with high loan-to-value ratios take longer to sell their properties than owners with low loan-to-value ratios. When sold, properties with high loan-to-value ratios receive a higher price than units with less debt. Both of these results are consistent with a search model in which owners "constrained" by large amounts of debt set a higher reservation price than "unconstrained" owners, accepting a lower probability of sale in exchange for a higher final sales price, and thus lend credibility to theoretical models that establish a link between sales volume and prices through changes in the equity of existing homeowners.

Suggested Citation

  • David Genesove & Christopher J. Mayer, 1993. "Equity and time to sale in the real estate market," Working Papers 93-6, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:93-6
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    File URL: http://www.bostonfed.org/economic/wp/wp1993/wp93_6.pdf
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    References listed on IDEAS

    as
    1. Jeremy C. Stein, 1993. "Prices and Trading Volume in the Housing Market: A Model with Downpayment Effects," NBER Working Papers 4373, National Bureau of Economic Research, Inc.
    2. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-1366, September.
    3. Karl E. Case & Robert J. Shiller, 1988. "The behavior of home buyers in boom and post-boom markets," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-46.
    4. Robert J. Shiller, 1991. "Arithmetic Repeat Sales Price Estimators," Cowles Foundation Discussion Papers 971, Cowles Foundation for Research in Economics, Yale University.
    5. Barton A. Smith & William P. Tesarek, 1991. "House Prices and Regional Real Estate Cycles: Market Adjustments in Houston," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 396-416.
    6. Christopher J. Mayer, 1993. "Taxes, income distribution, and the real estate cycle: why all houses do not appreciate at the same rate," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 39-50.
    7. Lawrence D. Jones, 1989. "Current Wealth and Tenure Choice," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(1), pages 17-40.
    8. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-137, March.
    9. Peter Linneman & Susan Wachter, 1989. "The Impacts of Borrowing Constraints on Homeownership," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(4), pages 389-402.
    10. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-740, August.
    11. Meese Richard & Wallace Nancy, 1994. "Testing the Present Value Relation for Housing Prices: Should I Leave My House in San Francisco?," Journal of Urban Economics, Elsevier, vol. 35(3), pages 245-266, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Real property;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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