Working Paper: CEPR ID: DP10342
Authors: Espen R. Moen; Plamen T. Nenov; Florian Sniekers
Abstract: Housing transactions by owner-occupiers take two steps, purchase of a new property and sale of the old housing unit. This paper shows how the transaction sequence decision of owner-occupiers depends on, and in turn, affects housing market conditions in an equilibrium search-and-matching model of the housing market. We show that home-owners prefer to buy first whenever there are more buyers than sellers in the market. This behavior leads to multiple steady state equilibria and to self-fulfilling fluctuations in prices and time-on-market. Equilibrium switches creates large fluctuations in the housing market, which are broadly consistent with stylized facts on the housing cycle.
Keywords: housing market; order of transactions; search frictions; strategic complementarities
JEL Codes: R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Market tightness (R31) | Homeowner preferences (R21) |
| Homeowner preferences (R21) | Multiple steady-state equilibria (D50) |
| Decision to buy first or sell first (G11) | Self-fulfilling fluctuations in prices and time-on-market (E32) |
| Equilibrium switches between buyer's and seller's market (D53) | Fluctuations in the stock of houses for sale, time-on-market, and prices (E32) |