Market Thickness and the Impact of Unemployment on Housing Market Outcomes

49 Pages Posted: 25 Oct 2013

See all articles by Li Gan

Li Gan

Texas A&M University - Department of Economics; National Bureau of Economic Research (NBER)

Qinghua Zhang

Peking University - Guanghua School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 2013

Abstract

This paper develops a search-matching model to study the impact of the unemployment rate on the housing market in the presence of the thick market effect. We estimate the structural model using Texas city-level data that covers three years, 1990, 2000 and 2010. Our structural estimation helps identify the channel through which the thick market effect amplifies the impact of the unemployment rate on housing market outcomes. Specifically, we show that an increase in the unemployment generates a thinner market, which leads to poorer matching quality on average. As a consequence, prices and the transaction volume both decline more than in the absence of the thick market effect. Simulations based on our estimates predict that a three percentage-point increase in the unemployment rate lowers the price by 7.74% and reduces the transaction volume by 9.98%. In addition, larger cities with more population experience milder changes in prices in response to changes in the unemployment rate compared to smaller cities.

Suggested Citation

Gan, Li and Zhang, Qinghua, Market Thickness and the Impact of Unemployment on Housing Market Outcomes (October 2013). NBER Working Paper No. w19564. Available at SSRN: https://ssrn.com/abstract=2345059

Li Gan (Contact Author)

Texas A&M University - Department of Economics ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Qinghua Zhang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
10
Abstract Views
216
PlumX Metrics