Working Paper: CEPR ID: DP14331
Authors: Liwa Rachel Ngai; Kevin D Sheedy
Abstract: This paper documents the cyclical properties of housing-market variables, which are shown to be volatile, persistent, and highly correlated with each other. Is the observed volatility in these variables due to changes in the speed at which houses are sold or changes in the number of houses that are put up for sale? An inflow-outflow decomposition shows that the inflow rate accounts for almost all of the fluctuations in sales volume. The paper then shows that a search-and-matching model with endogenous moving subject to housing demand shocks performs well in explaining fluctuations in housing-market variables. A housing demand shock induces more moving and increases the supply of houses on the market, thus one housing demand shock replicates three correlated reduced-form shocks that would be needed to match the relative volatilities and correlations among key housing-market variables.
Keywords: housing market volatility; search frictions; inflow-outflow decomposition; endogenous moving
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| housing demand shocks (R21) | inflow rate (F21) |
| inflow rate (F21) | sales volume (A32) |
| housing demand shocks (R21) | moving among homeowners (R21) |
| moving among homeowners (R21) | inflow rate (F21) |
| inflow rate (F21) | housing market variables (R31) |
| housing demand shocks (R21) | housing supply shock (R31) |