Tracing the Source of Liquidity for Distressed Housing Markets
Real Estate Economics
66 Pages Posted: 8 Feb 2019 Last revised: 5 May 2022
Date Written: January 28, 2019
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: Suggested Citation