The Benefit of Search in Housing Markets

Ping Cheng, Zhenguo Lin, Yingchun Liu and Michael J . Seiler

Journal of Real Estate Research, 2015, vol. 37, issue 4, 597-622

Abstract: Unlike in an efficient market where buyers and sellers are mere price-takers, participants in the real estate market are able to influence ultimate transaction prices through individual search efforts. Such benefit can offset the negative price trend of a declining market and compound the positive price trend of a growing market, suggesting an asymmetric effect of the price and time-on-the-market (TOM) relation. In other words, search mitigates the downside risk and magnifies the upside potential for the seller, which is an important advantage for real estate investors. In this study, we uncover the asymmetric price–TOM relation, and demonstrate the value of search using empirical data from the residential real estate market. Based on a large sample of home sales in the Virginia Beach–Norfolk, Virginia metropolitan area during an extended period of time, our findings clearly reveal an asymmetric search effect on price: longer TOM is strongly correlated with higher selling prices, but more interestingly, even in a declining market, the effect of the search (or the impact of TOM) on price is still positive, albeit smaller, suggesting the benefit of search is more than enough to potentially offset a negative market impact.

Date: 2015
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DOI: 10.1080/10835547.2015.12091430

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