Endogenous Sources of Volatility in Housing Markets: The Joint Buyer-Seller Problem

Elliot Anenberg and Patrick Bayer

No 18980, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E32 R0 R21 R3 R31 (search for similar items in EconPapers)
Date: 2013-04
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac and nep-ure
Note: EFG PE
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Citations: View citations in EconPapers (34)

Published as Elliot Anenberg & Patrick Bayer, 2020. "ENDOGENOUS SOURCES OF VOLATILITY IN HOUSING MARKETS: THE JOINT BUYER–SELLER PROBLEM," International Economic Review, vol 61(3), pages 1195-1228.

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Working Paper: Endogenous sources of volatility in housing markets: the joint buyer-seller problem (2013)
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