Bidding Wars for Houses

Real Estate Economics, Forthcoming

Posted: 16 May 2012

See all articles by Lu Han

Lu Han

University of Toronto - Rotman School of Management

William C. Strange

University of Toronto - Rotman School of Management

Date Written: May 16, 2012

Abstract

This paper employs data from the National Association of Realtors to analyze the time series and cross sectional patterns of bidding wars for houses. The paper generates a number of novel stylized facts. Bidding wars – where multiple buyers compete for a house and push its sales price above list price – were once rare, a fairly constant 3-4% of housing sales. This led to treating the list price as a ceiling in empirical and theoretical research on housing transactions. The paper shows that bidding wars have become much more common during the recent housing boom, more than tripling as a share of housing sales between 1995-2005. The share of sales involving bidding wars has fallen during the subsequent bust, but it remains approximately twice as high as it was before the boom. Overall, the paper shows the incidence of bidding wars to be higher in circumstances associated with general macroeconomic and specific housing booms. However, bidding war frequency varies considerably by city, with the share in some cities rising to more than 30% during the boom and the share in other cities rising hardly at all. This variation, and also the rarity of bidding wars during past booms, suggests that the recent growth of bidding wars is not simply a boom phenomenon. The paper also considers – at the MSA and individual housing transaction levels – other potential contributing factors, including buyer irrationality, the use of the internet in home purchases, and land use regulation.

Keywords: Housing market microstructure, Bidding war

Suggested Citation

Han, Lu and Strange, William C., Bidding Wars for Houses (May 16, 2012). Real Estate Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2061328

Lu Han (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

William C. Strange

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/%7Ewstrange/

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