IMPLICATIONS OF THE HOME BUYING PROCESS FOR SHORT TERM TRANSACTIONS

Manuel Käsbauer and Ralf Hohenstatt

ERES from European Real Estate Society (ERES)

Abstract: Studies about the housing market based on fundamentals like income, construction costs, interest rate generally lacked in explanation power during the latest massive price move-ments especially in the US. The main reason for this might be that expectations of individu-als for further price increases as a main driver for house prices during that period were not considered. The importance of expectations can be due to the belief of a lack in affordability of housing after further price increases. Alternatively this euphoric element is based on the implicit costs of not gaining from the price increases (Shiller 2007). This study is one of the first considering householdsí rationales in their decision for an in-vestment in their own property. The National Association of Realtors observes home buyersí characteristics for nine years now. Based on the implications of their surveys we provide a sophisticated analysis of householdsí behavior during their home buying process. Further-more these insights suggest leading indicators for transactions in the housing market taken in the near future. This connection is caused by the common cyclical behavior of informa-tion gathering processes, i.e. yard signs or real estate agents, and transactions as well as the logical lag structure of this search process and the corresponding transaction. Finally, as we are able to forecast transactions, we make inference about house price movements following the assumption of households¥ belief of mean reversion of house prices (Arbel et. al. 2009).

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2010-01-01
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