Credit and Inventories in Illiquid Housing Markets

Díaz, Antonia

No 20900, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Wealthier, risk-averse buyers pay more to expedite up transactions in competitive search markets. This, coupled with forward-looking intermediaries who hold vacant homes overnight, implies that a credit expansion produces a boom in prices that slowly recedes over time. This boom is due to a combination of two effects. First, search and matching frictions imply that buyers are willing to pay a higher price to trade faster, not only to consume housing services. Second, the fact that intermediaries are forward-looking implies that trading probabilities today depend on the future evolution of prices. Since agents forecast that prices are higher than in the initial steady state, they turn to trading today. Our theory produces a boom in prices that slowly recedes and a gradual rise of homeownership rate.

Keywords: Competitive search; Wealth effects; Housing prices; Credit constraints; Housing supply; Rental housing; Transitional dynamics (search for similar items in EconPapers)
JEL-codes: D31 D83 E21 (search for similar items in EconPapers)
Date: 2025-12
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