Discussion Paper Details

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Title: Buying First or Selling First in Housing Markets

Author(s): Espen R Moen, Plamen T. Nenov and Florian Sniekers

Publication Date: January 2015

Keyword(s): housing market, order of transactions, search frictions and strategic complementarities

Programme Area(s): Financial Economics and Industrial Organization

Abstract: Housing transactions by owner-occupiers take two steps, purchase of a new property and sale of the old housing unit. This paper shows how the transaction sequence decision of owner-occupiers depends on, and in turn, affects housing market conditions in an equilibrium search-and-matching model of the housing market. We show that home-owners prefer to buy first whenever there are more buyers than sellers in the market. This behavior leads to multiple steady state equilibria and to self-fulfilling fluctuations in prices and time-on-market. Equilibrium switches creates large fluctuations in the housing market, which are broadly consistent with stylized facts on the housing cycle.

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Bibliographic Reference

Moen, E, Nenov, P and Sniekers, F. 2015. 'Buying First or Selling First in Housing Markets'. London, Centre for Economic Policy Research.