2018/01/29 by Adam M. Guren, Adam Guren · 2 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Housing Market and Economics #Economic and Environmental Valuation #Consumer Market Behavior and Pricing
paper · doi:10.1086/697207
House prices exhibit substantially more momentum, positive autocorrelation in price changes, than existing theories can explain. I introduce an amplification mechanism to reconcile this discrepancy. Sellers do not set a unilaterally high or low list price because they face a concave demand curve: increasing the price of an above-average-priced house rapidly reduces its sale probability, but cutting the price of a below-average-priced house only slightly improves its sale probability. The resulting strategic complementarity amplifies frictions because sellers gradually adjust their price to stay near average. I provide empirical evidence for concave demand using a quantitative search model that amplifies momentum two- to threefold.