Working Paper: NBER ID: w18980
Authors: Elliot Anenberg; Patrick Bayer
Abstract: This paper presents new empirical evidence that internal movement - selling one home and buying another - by existing homeowners within a metropolitan housing market is especially volatile and the main driver of fluctuations in transaction volume over the housing market cycle. We develop a dynamic search equilibrium model that shows that the strong pro-cyclicality of internal movement is driven by the cost of simultaneously holding two homes, which varies endogenously over the cycle. We estimate the model using data on prices, volume, time-on-market, and internal moves drawn from Los Angeles from 1988-2008 and use the fitted model to show that frictions related to the joint buyer-seller problem: (i) substantially amplify booms and busts in the housing market, (ii) create counter-cyclical build-ups of mismatch of existing owners with their homes, and (iii) generate externalities that induce significant welfare loss and excess price volatility.
Keywords: housing market; volatility; internal movement; buyer-seller problem
JEL Codes: E32; R21; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| internal movement (F20) | transaction volume fluctuations (E32) |
| joint buyer-seller problem (L14) | price volatility (G13) |
| effective cost of holding two homes (R21) | transaction volume volatility (F31) |
| joint buyer-seller problem (L14) | time on market volatility (G17) |