Buying First or Selling First? Buyer-Seller Decisions and Housing Market Volatility

Plamen Nenov and Espen Moen ()
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Plamen Nenov: Norwegian Business School (BI)

No 471, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: Housing transactions by existing homeowners take two steps, a purchase of a new property and sale of the old housing unit. These two decisions are not independent, and their sequence may depend on the state of the housing market. This paper shows how the sequence of buyer-seller decisions depends on, and in turn, affects housing market conditions in an equilibrium search-and-matching model of the housing market. Under a simple payoff condition, we show that the decisions to "buy first" or "sell first" among existing homeowners are strategic complements - homeowners prefer to "buy first" whenever there are more buyers than sellers in the market. This behavior leads to multiple steady state equilibria and to dynamic equilibria featuring low frequency self-fulfilling fluctuations in house prices and time on the market. The model is broadly consistent with stylized facts about the housing market.

Date: 2014
New Economics Papers: this item is included in nep-dge and nep-ure
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Citations: View citations in EconPapers (4)

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