Tracing the Source of Liquidity for Distressed Housing Markets

Real Estate Economics

66 Pages Posted: 8 Feb 2019 Last revised: 5 May 2022

See all articles by Rohan Ganduri

Rohan Ganduri

Emory University

Steven Chong Xiao

University of Texas at Dallas - Naveen Jindal School of Management

Serena Wenjing Xiao

University of Texas at Dallas

Date Written: January 28, 2019

Abstract

We show that profit-seeking institutional investors provide valuable liquidity and spur the recovery of distressed housing markets. Using a quasi-natural experiment wherein investors purchased pre-packaged distressed home portfolios from government-sponsored enterprises, we find that transaction prices of properties located within 0.25 miles of bulk-sale properties increased by 1.4% more than homes located farther away. This positive price spillover effect helped reverse the discounts at which such properties were being sold prior to the bulk-sale event. The price spillover effect due to the bulk-sale event is greater for foreclosed homes (4.1%), homes similar to the bulk-sale homes (2.5%), and homes in highly distressed neighborhoods (7.0%). Our results highlight asset disposition through pooling and institutional participation as a potential market-driven channel for the recovery of distressed housing markets.

Keywords: Institutional Investor, Liquidity, Distress, Foreclosures

JEL Classification: G20, R30

Suggested Citation

Ganduri, Rohan and Xiao, Steven Chong and Xiao, Serena Wenjing, Tracing the Source of Liquidity for Distressed Housing Markets (January 28, 2019). Real Estate Economics, Available at SSRN: https://ssrn.com/abstract=3324008 or http://dx.doi.org/10.2139/ssrn.3324008

Rohan Ganduri

Emory University ( email )

1300 Clifton Rd
Atlanta, GA 30322
United States

Steven Chong Xiao (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Serena Wenjing Xiao

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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