The Ins and Outs of Selling Houses: Understanding Housing Market Volatility

62 Pages Posted: 29 Jan 2020

See all articles by Rachel Ngai

Rachel Ngai

London School of Economics & Political Science (LSE) - Department of Economics; Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management

Kevin Daniel Sheedy

London School of Economics

Date Written: January 2020

Abstract

This paper documents the cyclical properties of housing-market variables, which are shown to be volatile, persistent, and highly correlated with each other. Is the observed volatility in these variables due to changes in the speed at which houses are sold or changes in the number of houses that are put up for sale? An inflow-outflow decomposition shows that the inflow rate accounts for almost all of the fluctuations in sales volume. The paper then shows that a search-and-matching model with endogenous moving subject to housing demand shocks performs well in explaining fluctuations in housing-market variables. A housing demand shock induces more moving and increases the supply of houses on the market, thus one housing demand shock replicates three correlated reduced-form shocks that would be needed to match the relative volatilities and correlations among key housing-market variables.

Keywords: Endogenous moving, Housing market volatility, inflow-outflow decomposition, search frictions

Suggested Citation

Ngai, Liwa Rachel and Sheedy, Kevin Daniel, The Ins and Outs of Selling Houses: Understanding Housing Market Volatility (January 2020). CEPR Discussion Paper No. DP14331. Available at SSRN: https://ssrn.com/abstract=3526057

Liwa Rachel Ngai (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 207 955 7017 (Phone)
+44 207 831 1840 (Fax)

Hong Kong University of Science & Technology (HKUST) - HKUST School of Business and Management ( email )

Clear Water Bay
Kowloon
Hong Kong

Kevin Daniel Sheedy

London School of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 207 107 5022 (Phone)
+44 207 955 6592 (Fax)

HOME PAGE: http://personal.lse.ac.uk/sheedy/

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