Publication: Housing Prices and Credit Constraints in Competitive Search
Loading...
Official URL
Full text at PDC
Publication Date
2022-11
Advisors (or tutors)
Editors
Journal Title
Journal ISSN
Volume Title
Publisher
Citations
Exportar
Abstract
This paper shows that, when utility is imperfectly transferable and the search process is competitive (or directed), wealthier buyers pay higher prices to speed up transactions. This result is established in a dynamic model of the housing market where households save both to smooth consumption and to build a down payment. “Block recursivity” is ensured by the existence of risk-neutral housing intermediaries. The calibrated version of our benchmark economy features greater indebtedness and higher housing prices in the long run compared to a Walrasian model, especially when the elasticity of new housing supply is low. We also show that the long-run effect of greater credit availability on housing prices depends crucially on whether or not rental and real estate housing stocks are segmented. Under full segmentation, price effects are much larger, with and without search frictions. But, even if there is no segmentation, these effects are substantial in our search model when supply elasticity is low, being larger than in the Walrasian version of the model. The last result is reversed with full segmentation, when search frictions dampen the price effect of the credit expansion.
Description
∗This paper was previously circulated under the title “Wealth Effects with Search Frictions in Housing Markets".
We are grateful to participants at the REDg Workshop, the Marrakech Macro Workshop, the Search and Matching
workshop at Bristol University and the SAET Conference, and in seminars at Universidad de Alicante, Universidad de Salamanca, Universidad Carlos III de Madrid, Konstanz University, University of Edinburgh, and Baruch College for their comments and suggestions. Support from the Spanish Ministerio Economía y Competitividad, grants ECO2016-76818-C3-1-P, ECO2017-86261-P, PID2019-107161GB-C31, MDM 2014-0431, and Comunidad de Madrid (Spain), grant EPUC3M11 (V PRICIT), are gratefully acknowledged. A. Díaz thanks the European University Institute for its hospitality and the Fernand Braudel Senior Fellowships programme for its support while working on this project.
†Corresponding Author: Antonia Díaz, ICAE (Complutense Institute of Economic Analysis), Universidad Complutense de Madrid, 28223 - Pozuelo de Alarcón (Madrid), Spain; E-mail: antonia.diaz@ucm.es
UCM subjects
Unesco subjects
Keywords
Citation
References
Acemoglu, D. and Shimer, R. (1999). Efficient Unemployment Insurance. Journal of Political Economy, 107(5):893–928.
Anenberg, E. and Bayer, P. (2020). Endogenous Sources Of Volatility In Housing Markets: The Joint Buyer–Seller Problem. International Economic Review, 61(3):1195–1228.
Bardi, M. and Capuzzo-Dolcetta, I. (1997). Optimal Control and Viscosity Solutions of HamiltonJacobi-Bellman Equations. Hirkhauser, Boston.
Baum-Snow, N. and Han, L. (2019). The microgeography of housing supply. Technical report, University of Toronto.
Ben-Shahar, D. and Golan, R. (2022). Price dispersion and time-on-market in the housing market. Journal of Housing Economics, 58:101875.
Broer, T., Kohlhas, A., Mitman, K., and Schlafmann, K. (2021). Information and Wealth Heterogeneity in the Macroeconomy. CEPR Discussion Papers 15934, C.E.P.R. Discussion Papers.
Budria, S., Díaz-Giménez, J., Quadrini, V., and Ríos-Rull, J.-V. (2002). New facts on the distribution of earnings, income and wealth in the U.S. 21:2–35.
Chaumont, G. and Shi, S. (2022). Wealth chaumount-shi-22, on-the-job search and inequality. Journal of Monetary Economics, 128:51–71.
Clausen, A. and Strub, C. (2016). A General and Intuitive Envelope Theorem. ESE Discussion Papers 274, Edinburgh School of Economics, University of Edinburgh.
de Wit, E. R. and van der Klaauw, B. (2013). Asymmetric information and list-price reductions in the housing market. Regional Science and Urban Economics, 43(3):507–520.
Dechert, W. D. and Nishimura, K. (1983). A complete characterization of optimal growth paths in an aggregated model with a non-concave production function. Journal of Economic Theory, 31(2):332–354.
Díaz, A. and Jerez, B. (2013). House prices, sales, and time on the market: A search-theoretic framework. International Economic Review, 54:837–872.
Díaz, A. and Luengo-Prado, M. J. (2008). On the user cost and homeownership. Review of Economic Dynamics, 11(3):584–613.
Díaz, A. and Luengo-Prado, M. J. (2010). The wealth distribution with durable goods. International Economic Review, 51(1):143–170.
Edward A. Baryla, J., Zumpano, L. V., and Elder, H. W. (2000). An Investigation of Buyer Search in the Residential Real Estate Market under Different Market Conditions. Journal of Real Estate Research, 20(1):75–91.
Eeckhout, J. and Sepahsalari, A. (2020). The effect of wealth on worker productivity. Bristol economics discussion papers, School of Economics, University of Bristol, UK.
Eerola, E. and Maattanen, N. (2018). Borrowing constraints and housing market liquidity. Review of Economic Dynamics, 27:184 – 204.
Elder, H. W., Zumpano, L. V., and Baryla, E. A. (1999). Buyer Search Intensity and the Role of the Residential Real Estate Broker. The Journal of Real Estate Finance and Economics, 18(3):351–368.
Favilukis, J., Ludvigson, S. C., and Nieuwerburgh, S. V. (2017). The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium. Journal of Political Economy, 125(1):140–223.
Fella, G. (2014). A generalized endogenous grid method for non-smooth and non-concave problems. Review of Economic Dynamics, 17(2):329–344.
Foote, C. L., Loewenstein, L., and Willen, P. S. (2020). Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications. The Review of Economic Studies, 88(1):229–259.
Garriga, C. and Hedlund, A. (2020). Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession. American Economic Review, 110(6):1603–1634.
Greenwald, D. L. and Guren, A. (2021). Do Credit Conditions Move House Prices? NBER Working Papers 29391, National Bureau of Economic Research, Inc.
Guren, A. M. (2018). House Price Momentum and Strategic Complementarity. Journal of Political Economy, 126(3):1172–1218.
Han, L., Lutz, C., Sand, B., Stacey, D., and Nieuwerburgh, S. V. (2021). The Effects of a Targeted Financial Constraint on the Housing Market [Lending implications of U.S. bank stress tests: Costs or benefits?]. Review of Financial Studies, 34(8):3742–3788.
Head, A., Lloyd-Ellis, H., and Sun, H. (2014). Search, Liquidity, and the Dynamics of House Prices and Construction. American Economic Review, 104(4):1172–1210.
Head, A., Sun, H., and Zhou, C. (2019). Indebted Sellers, Liquidity and Mortgage Standards. Working Paper 1359, Queen’s University.
Hedlund, A. (2016a). Illiquidity and its discontents: Trading delays and foreclosures in the housing market. Journal of Monetary Economics, 83:1 – 13.
Hedlund, A. A. (2016b). The cyclical dynamics of illiquid housing, debt, and foreclosures. Quantitative Economics, 7(1):289–328.
Hosios, A. J. (1990). On The Efficiency of Matching and Related Models of Search and Unemployment. Review of Economic Studies, 57(2):279–298.
Huggett, M. (1993). The risk-free rate in heterogeneous-agent incomplete-insurance economies. Journal of Economic Dynamics and Control, 17(5-6):953–969.
Jerez, B. (2014). Competitive equilibrium with search frictions: A general equilibrium approach. Journal of Economic Theory, 153(C):252–286.
Kaplan, G., Mitman, K., and Violante, G. L. (2020). The housing boom and bust: Model meets evidence. Journal of Political Economy, 128(9):3285–3345.
Karahan, F. and Rhee, S. (2019). Geographic reallocation and unemployment during the Great Recession: The role of the housing bust. Journal of Economic Dynamics and Control, 100(C):47– 69.
Kiyotaki, N. and Moore, J. (1997). Credit cycles. Journal of Political Economy, 105(2):211–248.
Kotova, N. and Zhang, A. L. (2020). Liquidity in residential real estate markets. Technical report, Working paper, Chicago Business School.
Lisi, G. and Iacobini, M. (2013). Real estate appraisals, hedonic models and the measurement of house price dispersion. Journal of Economics and Econometrics, 56(1):61–73.
Lovo, S. and Spaenjers, C. (2018). A Model of Trading in the Art Market. American Economic Review, 108(3):744–774.
Menzio, G. and Shi, S. (2010). Block recursive equilibria for stochastic models of search on the job. Journal of Economic Theory, 145(4):1453–1494.
Menzio, G. and Shi, S. (2011). Efficient Search on the Job and the Business Cycle. Journal of Political Economy, 119(3):468–510.
Menzio, G., Shi, S., and Sun, H. (2013a). A monetary theory with non-degenerate distributions. Journal of Economic Theory, 148(6):2266–2312.
Menzio, G., Shi, S., and Sun, H. (2013b). A monetary theory with non-degenerate distributions. Journal of Economic Theory, 148(6):2266 – 2312.
Merlo, A. and Ortalo-Magné, F. (2004). Bargaining over residential real estate: evidence from england. Journal of Urban Economics, 56(2):192–216.
Milgrom, P. and Segal, I. (2002). Envelope Theorems for Arbitrary Choice Sets. Econometrica, 70(2):583–601.
Moen, E. R. (1997). Competitive search equilibrium. Journal of Political Economy, 105(2):385–411.
Moen, E. R., Nenov, P. T., and Sniekers, F. (2021). Buying First or Selling First in Housing Markets. Journal of the European Economic Association, 19(1):38–81.
Molico, M. (2006). The distribution of money and prices in search equilibrium*. International Economic Review, 47(3):701–722.
Ngai, L. R. and Sheedy, K. (2020). The decision to move house and aggregate housing-market dynamics. Journal of the European Economic Association, 18(5):2487–2531.
Ngai, L. R. and Tenreyro, S. (2014). Hot and cold seasons in the housing market. American Economic Review, 104(12):3991–4026.
Ortalo-Magné, F. and Rady, S. (2006). Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints. Review of Economic Studies, 73(2):459–485.
Piazzesi, M., Schneider, M., and Stroebel, J. (2015). Segmented housing search. Technical report, National Bureau of Economic Research.
Qiu, L. and Tu, Y. (2018). Homebuyers’ heterogeneity and housing prices. Available at SSRN 3187233.
Rincón-Zapatero, J. P. (2019). Differentiability of the value function and euler equation in nonconcave discrete-time stochastic dynamic programming. Economic Theory Bulletin.
Rincón-Zapatero, J. P. and Rodríguez-Palmero, C. (2003). Existence and Uniqueness of Solutions to the Bellman Equation in the Unbounded Case. Econometrica, 71(5):1519–1555.
Ríos-Rull, J.-V. (1997). Computation of equilibria in heterogeneous agent economies. Research Department Staff Report, Federal Reserve Bank of Minneapolis.
Saiz, A. (2010). The Geographic Determinants of Housing Supply. The Quarterly Journal of Economics, 125(3):1253–1296.
Shi, S. (2009). Directed Search for Equilibrium Wage-Tenure Contracts. Econometrica, 77(2):561– 584.
Sommer, K. and Sullivan, P. (2018). Implications of US Tax Policy for House Prices, Rents, and Homeownership. American Economic Review, 108(2):241–274.
Sommer, K., Sullivan, P., and Verbrugge, R. (2013). The equilibrium effect of fundamentals on house prices and rents. Journal of Monetary Economics, 60(7):854–870.
Storesletten, K., Telmer, C., and Yaron, A. (2004). Consumption and risk sharing over the life cycle. Journal of Monetary Economics, 51:609–633.
Wright, R., Kircher, P., Julien, B., and Guerrieri, V. (2021). Directed Search and Competitive Search Equilibrium: A Guided Tour. Journal of Economic Literature, 59(1):90–148.