The Informational Role of Housing Market Liquidity
54 Pages Posted: 5 Dec 2016
Date Written: December 5, 2016
Prices and liquidity are closely related in residential real estate markets, both at local level and across neighbourhoods. In this paper, I provide empirical evidence for spatial correlation in housing market turnover, controlling for the role of migration flows. Using micro-level panel data on household valuations of their own non-traded properties, I find that perceived house price growth rates are strongly linked to developments in neighbouring areas, consistent with a framework in which spillovers arise through spatial learning. These mechanisms have the potential to explain the regional clustering of house prices, feedback effects in housing market liquidity, and the aggregate transmission of shocks from narrow segments of the market.
Keywords: Housing market, Liquidity, Learning
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