Can the Mortensen-Pissarides model match the housing market facts?

Lisi, Gaetano (2013): Can the Mortensen-Pissarides model match the housing market facts?

Abstract

In the housing markets three basic facts have been repeatedly reported by empirical studies: the existence of price dispersion, the positive correlation between housing price and time-on-the-market, and between housing price and trading volume. Since housing markets are characterised by a decentralised framework of exchange with important search and matching frictions, this paper examines whether the baseline search and matching model can account for these three basic facts. We find that the behaviour of the housing market reflected in the above empirical findings can be addressed by the standard matching framework.

• Item Type: MPRA Paper
• Language: English
• Keywords: Matching models, Time-on-the-market, Housing price dispersion, Trading volume
• Subjects: J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J63 - Turnover ; Vacancies ; Layoffs; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R31 - Housing Supply and Markets; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R21 - Housing Demand

References

Albrecht, James, Anderson Axel, Eric Smith, and Susan Vroman (2007), “Opportunistic Matching in the Housing Market”, International Economic Review, 48(2), 641-664.

Albrecht, James, Gautier Pieter A., and Susan Vroman (2009), “Directed Search in the Housing Market”, IZA Discussion Papers, 4671.

Anglin, Paul M., Ronald Rutherford and Thomas M. Springer (2003), “The Trade‐off Between the Selling Price of Residential Properties and Time‐on‐the‐Market: The Impact of Price Setting”, Journal of Real Estate Finance and Economics, 26(1), 95‐111.

Baye, Michael, John Morgan, and Patrick Scholten (2006), “Information, Search, and Price Dispersion”, in Handbook on Economics and Information Systems, (T. Hendershott, ed.), Elsevier Press, Amsterdam.

Caplin, Andrew, and John Leahy (2008), “Trading Frictions and House Price Dynamics”, NBER Working Paper, w14605.

Díaz, Antonia, and Belén Jerez (2009), “House Prices, Sales and Time on the Market: A Search-Theoretic Framework”, Working Paper 09-25 Economic Series, Departamento de Economía, Universidad Carlos III de Madrid.

Fisher, Jeffrey, Dean Gatzlaff, David Geltner, and Donald Haurin (2003), “Controlling for the Impact of Variable Liquidity in Commercial Real Estate Price Indices,” Real Estate Economics, 31(2), 269-303.

Genesove, David, and Lu Han (2010), “Search and Matching in the Housing Market”, CEPR Discussion Papers, n. 7777.

Janssen, Jos, Bert Kruijt, and Barrie Needham (1994), “The Honeycomb Cycle in Real Estate”, Journal of Real Estate Research, 9(2), 237-252.

Krainer, John (2001), “A Theory of Liquidity in Residential Real Estate Markets”, Journal of Urban Economics, 49(1), 32–53.

Leung, Charles Ka Yui, and Zhang, Jun (2011), “Fire Sales in Housing Market: Is the House–Search Process Similar to a Theme Park Visit?”, International Real Estate Review, 14(3), 311-329.

Leung, Charles Ka Yui, Garion C. K. Lau, and Youngman Chun Fai Leong (2002), “Testing alternative theories of the property price-trading volume correlation”, Journal of Real Estate Research, 23(3), 253-264.

Leung, Charles Ka Yui, Youngman Chun Fai Leong, and Ida Yin Sze Chan (2002), “Time-On-the-Market: Why Isn't Price Enough? International Real Estate Review, 5(1), 91‐115.

Leung, Charles Ka Yui, Youngman Chun Fai Leong, and Siu Kei Wong (2006), “Housing Price Dispersion: An Empirical Investigation”, The Journal of Real Estate Finance and Economics, 32(3), 357-385.

Merlo, Antonio, and Francois Ortalo-Magne (2004), “Bargaining over Residential Real Estate: Evidence from England”, Journal of Urban Economics, 56(2), 192-216.

Ngai, Rachael and Silvana Tenreyro (2009), “Hot and Cold Seasons in the Housing Market”, CEP Discussion Papers, dp0922.

Novy-Marx, Robert (2009), “Hot and Cold Markets”, Real Estate Economics, 37(1), 1-22.

Peterson, Brian M. (2012), “Fooled by Search: Housing Prices, Turnover and Bubbles”, Bank of Canada Working Paper, 2012-3.

Petrongolo, Barbara, and Christopher A. Pissarides (2001), “Looking into the Black Box: A Survey of the Matching Function”, Journal of Economic Literature, 39(2), 390-431.

Piazzesi, Monika, and Martin Schneider (2009), “Momentum Traders in the Housing Market: Survey Evidence and a Search Model”, American Economic Review: Papers & Proceedings, 99(2), 406-411.

Pissarides, Christopher A. (2000), Equilibrium Unemployment Theory (2nd edition), MIT Press Books.

Vukina, Tomislav and Xiaoyong Zheng (2010), “Bargaining, Search, and Price Dispersion: Evidence from the Live Hogs Market”, Agricultural and Resource Economics Review, 39(3), 534–546.

Wasmer, Etienne, and Philippe Weil (2004), “The Macroeconomics of Labor and Credit Market Imperfections”, American Economic Review, 94(4), 944-963;

Wheaton, William C. (1990), “Vacancy, Search, and Prices in a Housing Market Matching Model”, Journal of Political Economy, 98(6), 1270-1292.