Abstract

Moving between owner-occupied houses requires both buying and selling. Despite strong strategic complementarities to buy first whenever the majority of other owner-occupiers buys first, and sell first whenever the majority sells first, the fraction of households that buys first moves slowly over time, and never approaches zero or one hundred percent. This paper explains this lack of coordination by informational frictions: the ratio of buyers to sellers is unknown to moving owner-occupiers. Assuming that these owners switch between buying first and selling first by learning about other moving owner-occupiers results in asymmetric steady states. Moreover, when owner-occupiers take into account the presence of speculating real estate firms that buy up houses when they are cheap, a limit cycle similar to Lux (1995) emerges. This limit cycle is broadly consistent with stylized facts of the housing market, featuring a slowly moving fraction of owners that buys first, moving in tandem with the number of transactions and housing prices, and in opposite direction to time-on-market and the stock of houses for sale.

Lunch will be provided for those attending the seminar.

For more information please contact Joep Lustenhouwer.