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Title: The Ins and Outs of Selling Houses: Understanding Housing Market Volatility

Author(s): Liwa Rachel Ngai and Kevin D. Sheedy

Publication Date: January 2020

Keyword(s): Endogenous moving, Housing market volatility, inflow-outflow decomposition and search frictions

Programme Area(s): Monetary Economics and Fluctuations

Abstract: This paper documents the cyclical properties of housing-market variables, which are shown to be volatile, persistent, and highly correlated with each other. Is the observed volatility in these variables due to changes in the speed at which houses are sold or changes in the number of houses that are put up for sale? An inflow-outflow decomposition shows that the inflow rate accounts for almost all of the fluctuations in sales volume. The paper then shows that a search-and-matching model with endogenous moving subject to housing demand shocks performs well in explaining fluctuations in housing-market variables. A housing demand shock induces more moving and increases the supply of houses on the market, thus one housing demand shock replicates three correlated reduced-form shocks that would be needed to match the relative volatilities and correlations among key housing-market variables.

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Bibliographic Reference

Ngai, L and Sheedy, K. 2020. 'The Ins and Outs of Selling Houses: Understanding Housing Market Volatility'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14331