Housing Markets: Auctions, Microstructure Noise, and Weekly Patterns

Abstract

This paper examines the drivers of housing market volatility through dynamic search-and-matching models that incorporate auctions, a prevalent yet understudied mechanism in housing transactions. Two versions of the model are developed: one where buyers visit homes randomly and another where search is directed by seller reserve prices. The analysis demonstrates that microstructure noise—arising from individual decisions and the interaction of search frictions and auctions—generates persistent volatility, even in large markets. The paper also identifies systematic weekly patterns in housing activity, which account for up to 60% of monthly variation in sales and listings. Together, microstructure noise and weekly patterns explain 70-80% of market volatility, with the remainder driven by exogenous shocks. These findings underscore the importance of auctions, microstructure noise, and weekly patterns in understanding housing market dynamics.

Keywords: housing, real estate, volatility, microstructure, search and matching, pricing, liquidity, Nash bargaining, auctions, bidding wars

JEL Classification: E30, C78, D44, R21, E44, R31, D83