[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/cte/werepe/30623.html
   My bibliography  Save this paper

Housing prices and credit constraints in competitive search

Author

Listed:
  • Díaz Rodríguez, Antonia
  • Jerez García-Vaquero, María Belén
Abstract
We embed a competitive search model of the real estate market into a heterogeneous agentsetting where hoeholds face credit constraints and idiosyncratic turnover shocks. Householdscan accumulate a risk-free asset to build a down payment and to smooth non-housing consumption.There is an inelastic supply of identical homes. The model is "block recursive". Inequilibrium wealthier home buyers sort into submarkets with higher prices and shorter buyingtimes. We identify a novel amplification mechanism, arising from sorting, by which demandshocks can substantially affect housing prices. In particular, lowering down payment requirementsinduces entry of new buyers in the market and higher asset accumulation by currentsearchers, as these agents target more expensive (less congested) submarkets. This affects thedistribution of prices and trading probabilities, and thereby the wealth distribution. Our quantitativeresults suggest that the effects on the long-run level and dispersion of housing pricescan be significant.

Suggested Citation

  • Díaz Rodríguez, Antonia & Jerez García-Vaquero, María Belén, 2020. "Housing prices and credit constraints in competitive search," UC3M Working papers. Economics 30623, Universidad Carlos III de Madrid. Departamento de Economía.
    • Handle: RePEc:cte:werepe:30623
    as

    Download full text from publisher

    File URL: https://e-archivo.uc3m.es/rest/api/core/bitstreams/a673e9d2-146a-4a7c-adbb-2dda2010d025/content
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gaetano Lisi & Mauro Iacobini, 2013. "Real estate appraisals, hedonic models and the measurement of house price dispersion," Journal of Economics and Econometrics, Economics and Econometrics Society, vol. 56(1), pages 61-73.
    2. Jan Eeckhout & Alireza Sepahsalari, 2024. "The Effect of Wealth on Worker Productivity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(3), pages 1584-1633.
    3. Antonia Díaz & Belén Jerez, 2013. "House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 837-872, August.
    4. Menzio, Guido & Shi, Shouyong, 2010. "Block recursive equilibria for stochastic models of search on the job," Journal of Economic Theory, Elsevier, vol. 145(4), pages 1453-1494, July.
    5. Antonia Díaz & María José Luengo-Prado, 2010. "The Wealth Distribution With Durable Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 143-170, February.
    6. W. Davis Dechert & Kazuo Nishimura, 2012. "A Complete Characterization of Optimal Growth Paths in an Aggregated Model with a Non-Concave Production Function," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 237-257, Springer.
    7. Espen R Moen & Plamen T Nenov & Florian Sniekers, 2021. "Buying First or Selling First in Housing Markets," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 38-81.
    8. Daron Acemoglu & Robert Shimer, 1999. "Efficient Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 107(5), pages 893-928, October.
    9. Jack Favilukis & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2017. "The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 140-223.
    10. Stefano Lovo & Christophe Spaenjers, 2018. "A Model of Trading in the Art Market," American Economic Review, American Economic Association, vol. 108(3), pages 744-774, March.
    11. Miguel Molico, 2006. "The Distribution Of Money And Prices In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 701-722, August.
    12. Giulio Fella, 2014. "A generalized endogenous grid method for non-smooth and non-concave problems," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 329-344, April.
    13. L. Rachel Ngai & Silvana Tenreyro, 2014. "Hot and Cold Seasons in the Housing Market," American Economic Review, American Economic Association, vol. 104(12), pages 3991-4026, December.
    14. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1253-1296.
    15. Andrew Clausen & Carlo Strub, 2012. "Envelope theorems for non-smooth and non-concave optimization," ECON - Working Papers 062, Department of Economics - University of Zurich.
    16. Monika Piazzesi & Martin Schneider & Johannes Stroebel, 2020. "Segmented Housing Search," American Economic Review, American Economic Association, vol. 110(3), pages 720-759, March.
    17. François Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 459-485.
    18. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April.
    19. Guido Menzio & Shouyong Shi, 2011. "Efficient Search on the Job and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 468-510.
    20. L Rachel Ngai & Kevin D Sheedy, 2020. "The Decision to Move House and Aggregate Housing-Market Dynamics [Opportunistic Matching in the Housing Market]," Journal of the European Economic Association, European Economic Association, vol. 18(5), pages 2487-2531.
    21. Menzio, Guido & Shi, Shouyong & Sun, Hongfei, 2013. "A monetary theory with non-degenerate distributions," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2266-2312.
    22. Elder, Harold W & Zumpano, Leonard V & Baryla, Edward A, 1999. "Buyer Search Intensity and the Role of the Residential Real Estate Broker," The Journal of Real Estate Finance and Economics, Springer, vol. 18(3), pages 351-368, May.
    23. Edward A. Baryla, Jr. & Leonard V. Zumpano & Harold W. Elder, 2000. "An Investigation of Buyer Search in the Residential Real Estate Market under Different Market Conditions," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 75-91.
    24. de Wit, Erik R. & van der Klaauw, Bas, 2013. "Asymmetric information and list-price reductions in the housing market," Regional Science and Urban Economics, Elsevier, vol. 43(3), pages 507-520.
    25. Shouyong Shi, 2009. "Directed Search for Equilibrium Wage-Tenure Contracts," Econometrica, Econometric Society, vol. 77(2), pages 561-584, March.
    26. Ben-Shahar, Danny & Golan, Roni, 2022. "Price dispersion and time-on-market in the housing market," Journal of Housing Economics, Elsevier, vol. 58(PB).
    27. Greg Kaplan & Kurt Mitman & Giovanni L. Violante, 2020. "The Housing Boom and Bust: Model Meets Evidence," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3285-3345.
    28. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2014. "Search, Liquidity, and the Dynamics of House Prices and Construction," American Economic Review, American Economic Association, vol. 104(4), pages 1172-1210, April.
    29. Lu Han & Chandler Lutz & Benjamin Sand & Derek Stacey & Stijn Van Nieuwerburgh, 2021. "The Effects of a Targeted Financial Constraint on the Housing Market [Lending implications of U.S. bank stress tests: Costs or benefits?]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3742-3788.
    30. Carlos Garriga & Aaron Hedlund, 2020. "Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession," American Economic Review, American Economic Association, vol. 110(6), pages 1603-1634, June.
    31. Merlo, Antonio & Ortalo-Magne, Francois, 2004. "Bargaining over residential real estate: evidence from England," Journal of Urban Economics, Elsevier, vol. 56(2), pages 192-216, September.
    32. Daniel Greenwald & Adam Guren, 2019. "Do Credit Conditions Move House Prices?," 2019 Meeting Papers 1334, Society for Economic Dynamics.
    33. Antonia Diaz & Maria Jose Luengo Prado, 2008. "On the User Cost and Homeownership," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 584-613, July.
    34. Kamila Sommer & Paul Sullivan, 2018. "Implications of US Tax Policy for House Prices, Rents, and Homeownership," American Economic Review, American Economic Association, vol. 108(2), pages 241-274, February.
    35. Karahan, Fatih & Rhee, Serena, 2019. "Geographic reallocation and unemployment during the Great Recession: The role of the housing bust," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 47-69.
    36. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    37. Jerez, Belén, 2014. "Competitive equilibrium with search frictions: A general equilibrium approach," Journal of Economic Theory, Elsevier, vol. 153(C), pages 252-286.
    38. Antonia Díaz & Belén Jerez, 2013. "House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 837-872, August.
    39. Javier Diaz-Gimenez & Vincenzo Quadrini & José-Víctor Ríos-Rull & Santiago Budria Rodriguez, 2002. "Updated facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 26(Sum), pages 2-35.
    40. Adam M. Guren, 2018. "House Price Momentum and Strategic Complementarity," Journal of Political Economy, University of Chicago Press, vol. 126(3), pages 1172-1218.
    41. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
    42. Clausen, Andrew & Strub, Carlo, 2013. "A General and Intuitive Envelope Theorem," SIRE Discussion Papers 2015-43, Scottish Institute for Research in Economics (SIRE).
    43. Sommer, Kamila & Sullivan, Paul & Verbrugge, Randal, 2013. "The equilibrium effect of fundamentals on house prices and rents," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 854-870.
    44. Hedlund, Aaron, 2016. "Illiquidity and its discontents: Trading delays and foreclosures in the housing market," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 1-13.
    45. Arthur J. Hosios, 1990. "On The Efficiency of Matching and Related Models of Search and Unemployment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(2), pages 279-298.
    46. Aaron Hedlund, 2016. "The cyclical dynamics of illiquid housing, debt, and foreclosures," Quantitative Economics, Econometric Society, vol. 7(1), pages 289-328, March.
    47. Randall Wright & Philipp Kircher & Benoît Julien & Veronica Guerrieri, 2021. "Directed Search and Competitive Search Equilibrium: A Guided Tour," Journal of Economic Literature, American Economic Association, vol. 59(1), pages 90-148, March.
    48. Elliot Anenberg & Patrick Bayer, 2020. "Endogenous Sources Of Volatility In Housing Markets: The Joint Buyer–Seller Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1195-1228, August.
    49. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Housing prices and credit constraints in competitive search
      by Christian Zimmermann in NEP-DGE blog on 2020-07-24 20:24:39

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jerez, Belén, 2023. "Competitive search with two-sided risk aversion," European Economic Review, Elsevier, vol. 157(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:cte:werepe:35536 is not listed on IDEAS
    2. repec:cte:werepe:28874 is not listed on IDEAS
    3. Antonia Díaz, 2024. "Credit and Inventories in Illiquid Housing Markets," Documentos de Trabajo del ICAE 2024-04, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    4. L. Rachel Ngai & Kevin D. Sheedy, 2024. "The Ins And Outs Of Selling Houses: Understanding Housing‐Market Volatility," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1415-1440, August.
    5. Kircher, Philipp & Wright, Randall & Julien, Benoit & Guerrieri, Veronica, 2017. "Directed Search: A Guided Tour," CEPR Discussion Papers 12315, C.E.P.R. Discussion Papers.
    6. Head, Allen & Sun, Hongfei & Zhou, Chenggang, 2023. "Indebted sellers, liquidity and mortgage standards," European Economic Review, Elsevier, vol. 151(C).
    7. Miroslav Gabrovski & Victor Ortego-Marti, 2025. "Home Construction Financing and Search Frictions in the Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 55, January.
    8. Allen Head & Huw Lloyd‐Ellis & Derek Stacey, 2023. "Heterogeneity, Frictional Assignment, And Home‐Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(3), pages 1265-1308, August.
    9. DeFusco, Anthony A. & Nathanson, Charles G. & Zwick, Eric, 2022. "Speculative dynamics of prices and volume," Journal of Financial Economics, Elsevier, vol. 146(1), pages 205-229.
    10. Anenberg, Elliot & Ringo, Daniel, 2024. "Volatility in Home Sales and Prices: Supply or Demand?," Journal of Urban Economics, Elsevier, vol. 139(C).
    11. Jerez, Belén, 2023. "Competitive search with two-sided risk aversion," European Economic Review, Elsevier, vol. 157(C).
    12. Menzio, Guido & Shi, Shouyong & Sun, Hongfei, 2013. "A monetary theory with non-degenerate distributions," Journal of Economic Theory, Elsevier, vol. 148(6), pages 2266-2312.
    13. Eric Smith & Zoe Xie & Lei Fang, 2022. "The Short and the Long of It: Stock-Flow Matching in the US Housing Market," CESifo Working Paper Series 10035, CESifo.
    14. repec:cte:werepe:34383 is not listed on IDEAS
    15. Gabrovski, Miroslav & Ortego-Marti, Victor, 2021. "Search and credit frictions in the housing market," European Economic Review, Elsevier, vol. 134(C).
    16. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "Efficiency in the Housing Market with Search Frictions," Working Papers 202108, University of California at Riverside, Department of Economics.
    17. Charles Ka Yui Leung & Joe Cho Yiu Ng, 2018. "Macro Aspects of Housing," GRU Working Paper Series GRU_2018_016, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    18. Liberati, Danilo & Loberto, Michele, 2019. "Taxation and housing markets with search frictions," Journal of Housing Economics, Elsevier, vol. 46(C).
    19. Hongfei Sun & Chenggang Zhou & Allen Head, 2016. "Default, Mortgage Standards, and Housing Liquidity," 2016 Meeting Papers 625, Society for Economic Dynamics.
    20. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "On the Positive Slope of the Beveridge Curve in the Housing Market," Working Papers 202113, University of California at Riverside, Department of Economics.
    21. Hedlund, Aaron, 2016. "Illiquidity and its discontents: Trading delays and foreclosures in the housing market," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 1-13.
    22. Aaron Hedlund, 2014. "Illiquidity and its Discontents: Trading Delays and Foreclosures in the Housing Market," Working Papers 1417, Department of Economics, University of Missouri.
    23. Miroslav Gabrovski & Victor Ortego-Marti, 2024. "On the slope of the Beveridge curve in the housing market," Economics Bulletin, AccessEcon, vol. 44(3), pages 948-960.

    More about this item

    Keywords

    Housing Prices;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cte:werepe:30623. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ana Poveda (email available below). General contact details of provider: http://www.eco.uc3m.es/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.