Search Frictions and Idiosyncratic Price Dispersion in the US Housing Market

Abstract

This paper studies idiosyncratic price dispersion in the US housing market. We develop a new strategy to measure dispersion at the level of individual house sales. We show that idiosyncratic price dispersion is countercyclical and seasonal, and is associated with various measures of market tightness. We construct a search-and-bargaining model of the housing market, and show that the relationship between seller time-on-market and price dispersion can be used to separately identify dispersion driven by seller and buyer preferences. We calibrate the model to data to quantify the magnitude of market frictions and their effects on the welfare of market participants.

Keywords: Housing, search, liquidity, price dispersion

JEL Classification: G11, G12, G14, R31