Liquidity in Residential Real Estate Markets

Abstract

What is the right metric, or combination of metrics, to measure liquidity in housing markets? We show that time-on-market and price dispersion, two potential liquidity metrics, can be thought of like quantity and price measures in a supply and demand system for liquidity. The two metrics should thus be jointly used to measure market liquidity, because either metric alone can produce misleading implications for outcomes such as house prices. We provide empirical evidence for the framework’s predictions using data on the US housing market.

Keywords: Housing, search, liquidity

JEL Classification: G11, G12, G14, R31