Working Paper: CEPR ID: DP9427
Authors: Liwa Rachel Ngai; Silvana Tenreyro
Abstract: Every year housing markets in the United Kingdom and the United States experience systematic above-trend increases in both prices and transactions during the second and third quarters (the "hot season") and below-trend falls during the fourth and first quarters (the "cold season"). House price seasonality poses a challenge to existing models of the housing market. To explain seasonal patterns, this paper develops a matching model that emphasizes the role of match-specific quality between the buyer and the house and the presence of thick-market effects in housing markets. It shows that a small, deterministic driver of seasonality can be amplified and revealed as deterministic seasonality in transactions and prices, quantitatively mimicking the seasonal fluctuations in transactions and prices observed in the United Kingdom and the United States.
Keywords: house price fluctuations; housing market; match quality; search and matching; seasonality; thick-market effects
JEL Codes: R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| seasonal fluctuations in housing markets (R31) | increase in housing transactions (R31) |
| seasonal fluctuations in housing markets (R31) | increase in prices (E31) |
| higher match-specific quality in the hot season (L15) | increase in transactions (F69) |
| higher match-specific quality in the hot season (L15) | increase in prices (E31) |
| search frictions (F12) | influence sellers' willingness to sell in the cold season (D16) |
| thick-market effects (D43) | amplify seasonal dynamics on prices (E32) |
| seasonal dynamics (C69) | predictable cycle of booms and busts in housing market (E32) |