The order of buying and selling: Multiple equilibria in the housing market

No 14-02, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance

Abstract: Moving between owner-occupied houses requires both buying and selling. During the Great Recession, the majority of movers sold their old houses before buying new ones, while in the preceding years the majority first bought new houses. In an equilibrium search model, by choosing the order of buying and selling, households affect the composition of buyer and seller types in the market. Because of their different outside options, different types bargain for different prices. Since prices have an impact on the incentives to enter the market as buyer or seller, a complementarity in the order of buying and selling exists. The resulting multiple equilibria can explain observed differences in trading volumes. Moreover, when all movers first buy and therefore own two houses for some time, the fraction of people paying double housing expenses is lower than when households enter as buyers and sellers simultaneously, due to a smaller time to sale.

Date: 2014
New Economics Papers: this item is included in nep-ure
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