Information Frictions and Housing Market Dynamics

Abstract

Federal Reserve Board, U.S.A. I examine the effects of seller uncertainty over their home value on the housing market. Using evidence from home listings and transactions data, I first show that sellers do not have full information about current period demand conditions for their homes. I incorporate this type of uncertainty into a dynamic microsearch model of the home selling problem with Bayesian learning. The estimated model highlights how information frictions help to explain the microdecisions of sellers and how these microdecisions affect aggregate market dynamics. The model generates a significant microfounded momentum effect in short-run aggregate price appreciation rates. * Manuscript

Can Tightness in the Housing Market Help Predict Subsequent Home Price Appreciation? Evidence from the United States and the Netherlands

“…Given our calibrated parameters, this seems to occur after 6 One can modify the model and let buyers and sellers learn about market conditions using Bayesian updating. This is the approach suggested by Anenberg (2012). 7 For simplicity, we let q s (λ) = 1 − exp(−ρ s /λ) and q b (λ) = 1 − exp(−ρ b /λ).…”

Long-Term Vacant Housing in the United States

“…For one reason, owners tend to overestimate the value of their property (Goodman and Ittner 1992) and some might not be willing to sell a property for less than they think it is worth (Genesove and Mayer 2001). In addition, property owners tend to use past transaction prices when setting list prices, which can make transaction prices slow to adjust to changes in market conditions (Anenberg 2013, Guren 2014. Moreover, if a buyer offers less 5 than the mortgage amount, the sale cannot occur unless the lender is willing to forgive the difference between the mortgage amount and the contract price or unless the borrower can make up this difference.…”

Local House Price Comovements

“…Furthermore, the particularly strong within-building excess comovements are likely to be affected by a second anchoring effect: If a real estate agent has successfully sold a flat in a given building, other households wishing to sell may want to hire the same real estate agent, who likely uses his past realized sales price as an anchor for the new ask price. Ask prices, in turn, are known to affect the level of transaction prices of properties in the neighborhood (Horowitz, 1992;Anenberg, 2016).…”