Search, Liquidity, and the Dynamics of House Prices and Construction
AbstractThe dynamics of house prices, sales, construction, and population growth in response to city-specific income shocks are characterized for 106 US cities. A dynamic model of search in the housing market in which construction, the entry of buyers, house prices, and sales are determined in equilibrium is then developed. The theory generates dynamics qualitatively consistent with the observations and a version calibrated to match key features of the US housing market offers a substantial quantitative improvement over models without search. In particular, variation in the time it takes to sell induces transaction prices to exhibit serially correlated growth.
CitationHead, Allen, Huw Lloyd-Ellis, and Hongfei Sun. 2014. "Search, Liquidity, and the Dynamics of House Prices and Construction." American Economic Review, 104 (4): 1172-1210. DOI: 10.1257/aer.104.4.1172
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
- R31 Housing Supply and Markets