Testing for Information Asymmetries in Real Estate Markets
We study equilibrium outcomes in markets with asymmetric information about asset values among both buyers and sellers. In residential real estate markets hard-to-observe neighborhood characteristics are a key source of information heterogeneity: sellers are usually better informed about neighborhood values than buyers, but there are some sellers and some buyers that are better informed than their peers. We propose a new theoretical framework for analyzing such markets with many heterogeneous assets and differentially informed agents. Consistent with the predictions from this framework, we find that changes in the seller composition towards (i) more informed sellers and (ii) sellers with a larger supply elasticity predict subsequent house-price declines and demographic changes in that neighborhood. This effect is larger for houses whose value depends more on neighborhood characteristics, and smaller for houses bought by more informed buyers. Our findings suggest that home owners have superior information about important neighborhood characteristics, and exploit this information to time local market movements.
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|Date of creation:||Jan 2014|
|Date of revision:|
|Publication status:||published as Pablo Kurlat & Johannes Stroebel, 2015. "Testing for Information Asymmetries in Real Estate Markets," Review of Financial Studies, Society for Financial Studies, vol. 28(8), pages 2429-2461.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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