Endogenous sources of volatility in housing markets: the joint buyer-seller problem

Elliot Anenberg and Patrick Bayer
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Elliot Anenberg: https://www.federalreserve.gov/econres/elliot-anenberg.htm

No 2013-60, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper presents new empirical evidence that internal movement--selling one home and buying another--by existing homeowners within a metropolitan housing market is especially volatile and the main driver of fluctuations in transaction volume over the housing market cycle. We develop a dynamic search equilibrium model that shows that the strong pro-cyclicality of internal movement is driven by the cost of simultaneously holding two homes, which varies endogenously over the cycle. We estimate the model using data on prices, volume, time-on-market, and internal moves drawn from Los Angeles from 1988-2008 and use the fitted model to show that frictions related to the joint buyer-seller problem: (i) substantially amplify booms and busts in the housing market, (ii) create counter-cyclical build-ups of mismatch of existing owners with their homes, and (iii) generate externalities that induce significant welfare loss and excess price volatility.

Date: 2013
New Economics Papers: this item is included in nep-ban, nep-dge, nep-lam, nep-ltv, nep-mac, nep-neu and nep-ure
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Citations: View citations in EconPapers (25)

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Related works:
Working Paper: Endogenous Sources of Volatility in Housing Markets: The Joint Buyer-Seller Problem (2013)
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