Working Paper: CEPR ID: DP10346
Authors: Liwa Rachel Ngai; Kevin D. Sheedy
Abstract: Using data on house sales and inventories of unsold houses, this paper shows that changes in sales volume are largely explained by changes in the frequency at which houses are put up for sale rather than changes in the length of time taken to sell them. Thus the decision to move house is key to understanding the volume of sales. This paper builds a model where homeowners chose when to move house, which can be seen as an investment in housing match quality. Since moving house is an investment with upfront costs and potentially long-lasting benefits, the model predicts that the aggregate moving rate depends on macroeconomic variables such as interest rates. The endogeneity of moving also means that those who move come from the bottom of the existing match quality distribution, which gives rise to a cleansing effect and leads to overshooting of housing-market variables.
Keywords: endogenous moving; housing market; match quality; investment; search and matching
JEL Codes: D83; E22; R21; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Changes in interest rates (E43) | Changes in the moving rate (J62) |
| Changes in the moving rate (J62) | Volume of sales in the housing market (R31) |
| Changes in interest rates (E43) | Volume of sales in the housing market (R31) |
| Changes in the listing rate (D49) | Volume of sales in the housing market (R31) |
| Holding the sales rate constant while allowing the listing rate to vary (R31) | Correlation with actual sales volume (C10) |
| Holding the listing rate constant (R31) | Correlation with actual sales volume (C10) |