The Daily Microstructure of the Housing Market
Peter Chinloy () and
William Larson ()
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Peter Chinloy: Temple University
No 17-01, FHFA Staff Working Papers from Federal Housing Finance Agency
The microstructure of the housing market includes periodic buyer liquidity constraints, high transaction costs, and bilateral negotiations on price and timing. These separately introduce daily price volatility and negative serial correlation that is suppressed at a monthly frequency. In a daily U.S. house price index, the annualized standard deviation of returns is 27 percent, versus 3 percent for monthly data. We attribute the daily volatility to repeating calendar-based liquidity price premiums (8 percentage points), transaction costs (7 pp), estimation and composition error (2 pp), and idiosyncratic shocks (10 pp). Monthly house price indices suggest housing has exceptionally high risk-adjusted returns. A daily index brings Sharpe ratios in line with other assets.
Keywords: liquidity; market microstructure; daily house price index; mortgages; volatility (search for similar items in EconPapers)
JEL-codes: G21 G22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mst and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:hfa:wpaper:17-01
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