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Search, Liquidity and the Dynamics of House Prices and Construction

Author Info

Listed author(s):
  • Allen Head

    ()

    (Queen`s University)

  • Huw Lloyd-Ellis

    ()

    (Queen`s University)

  • Hongfei Sun

    ()

    (Queen`s University)

Abstract

We characterize the dynamics of relative house prices, housing sales, construction rates and population growth in response to city-specific income shocks for 106 US cities. We then develop a dynamic search model of the housing market in which construction, the entry of buyers, house prices and sales are endogenously determined in equilibrium. Our theory generates dynamics that are qualitatively consistent with our empirical observations and a version of the economy calibrated to match long-run features of the housing market in U.S. cities offers a substantial quantitative improvement over similar models with no search. In particular, variation in the time it takes to sell a house (i.e. the house's liquidity) induces house values and transaction prices to exhibit momentum, or serially correlated growth.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1276.pdf
File Function: First version 2012
Download Restriction: no

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1276.

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Length: 70 pages
Date of creation: Sep 2012
Handle: RePEc:qed:wpaper:1276
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Kingston, Ontario, K7L 3N6

Phone: (613) 533-2250
Fax: (613) 533-6668
Web page: http://qed.econ.queensu.ca/
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More information through EDIRC

Keywords: House prices; liquidity; search; construction; dynamic panel;

Other versions of this item:

Find related papers by JEL classification:
  • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
  • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
  • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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