The role of the list price in housing markets: Theory and an econometric model

Houses are routinely sold at prices below, but rarely sold at prices above, their list prices. List prices appear to be price ceilings that preclude the possibility of sales at higher prices. This paper presents a theory of sellers' behaviour that explains why there are list prices in housing markets and why list prices are distinct from sellers' reservation prices. The theory forms the basis of an econometric model that has been estimated using data from the Baltimore, MD, area. The estimated model predicts sale and reservation prices conditional on list prices. The predictions of sale prices are considerably more accurate than those obtained from a standard hedonic price regression. The estimated model also explains why sellers may not be willing to reduce their list prices even after their houses have remained unsold for long periods of time.     

Divergence in Reservation Prices and Its Impact on Housing Market Liquidity: A Theoretical Analysis

In this paper, we build a two-period English auction model to study the relative movements between buyers’ and sellers’ reservation prices in the housing market. We show that changes in sellers’ reservation prices are jointly determined by changes in buyers’ reservation prices, probability of buyers offering a high or low price, and the arrival rate of buyers. When the divergence between the buyers’ and sellers’ reservation prices widens, the probability of sale increases in the upward market and decreases in the downward market, contributing to the increases or decreases in market liquidity.     

House prices and consumer welfare

We develop a new approach to measuring changes in consumer welfare due to changes in the price of owner-occupied housing. In our approach, an agent's welfare adjustment is defined as the transfer required to keep expected discounted utility constant given a change in current house prices. We demonstrate that, up to a first-order approximation, there is no aggregate change in welfare due to price increases in the existing housing stock. This follows from a simple market clearing condition where capital gains experienced by sellers are exactly offset by welfare losses to buyers. We show that this result holds (approximately) even in a model that accounts for changes in consumption and investment plans prompted by current house price changes. There can, however, be changes in welfare due to additions to the stock of housing, or to changes in the price of renovating and upgrading the existing stock of housing. For the United States, we estimate the welfare cost of house price appreciation to be an average of $127 per household per year over the 1984–1998 period.     

What is the role of the asking price for a house?

This paper considers the role of the asking price in housing transactions both theoretically and empirically. Significant fractions of housing transactions involve sales prices that are either below or above asking price, which might suggest that asking price has limited relevance. However, many housing transactions involve a sales price exactly equal to asking price (a fact that has previously drawn little notice), strongly suggesting that asking price does matter. The paper develops a model where asking price is neither a binding commitment nor a ceiling, yet still directs buyer search and impacts sales price. Using novel survey data, the paper provides empirical evidence consistent with asking price playing a directing role in buyer search. Consistent with theory, this effect is stronger for more atypical houses and in bust markets.     

The Valuation of Real Capital: A Random Walk down Kungsgatan

This paper analyzes the temporal pattern of prices for single-family housing. We estimate models of house price dynamics using a repeat sales framework, and we use the results to test for a random walk in asset prices. For eight large samples of housing transactions, representing essentially all house sales in Sweden during a 12-year period, we reject the hypothesis that house prices follow a random walk in favor of a model of first-order serial correlation.     

House Prices, Housing Investment and Demography Forecasts from the LBS/Abbey National Model of the UK Housing Market

A new housing sector has been incorporated into the London Business School model. This article outlines the new housing model, summarizes the research which has gone into its construction, and presents a forecast of the UK housing market. Using the new housing model, we forecast a moderate recovery in the housing market in the later part of 1991 and 1992. This recovery is however short-lived and does not result in such high rates of house price increase as previous house price booms (Chart 1).
Cuts in interest rates following entry to the exchange rate mechanism of the EMS prompt a recovery in house prices from the middle of 1991. House price inflation then peaks with an increase in average UK house prices in 1992 of 11 per cent over the previous year. Increases in real personal disposable income are modest, by the standards of the 1980s, and for this reason the recovery does not develop the momentum of previous house price booms. House price inflation moderates again in 1993 falling back to around 7 per cent. Housing starts and housing investment recover only slightly from their present depressed levels.
the recovery in house prices is weaker than that foreseen in our April Forecast Release. This is because real personal disposable income is now forecast to grow more slowly during 1991. Sterling's membership of the ERM is followed by a fall in interest rates, but it is the timing of interest rate cuts rather than their magnitude which differs from the earlier forecast. The changed profile of interest rates has altered the house price forecast only marginally.     

Empirical evidence on the reaction speeds of housing prices and sales to demand shocks

This article studies the co-movement and dynamics between price movements and transactions in the housing market using data for the period 1988–2008 from Finland. While the previous related literature examines the reactions of sales and prices to an interest rate shock only, this study investigates the responses to income and debt shocks as well. The empirical estimations show that the response of prices to demand shocks is substantially slower than that of sales. The estimated reactions of sales substantially differ from those reported in the earlier literature. The reaction patterns can create the kind of strong positive co-movement between price movements and sales volume and the kind of negative correlation between price level and sales that have been found in several housing markets.     

Theoretical and Empirical Analysis of the Multiperiod Pricing Pattern in the Real Estate Market

We examine empirically and theoretically the multiperiod pricing pattern in the real estate market. First, in a game theoretic framework, we identify conditions for determining whether potential closing prices increase or decrease and marginally increase with time on market. Then, by observing rental housing transactions, we empirically find evidence that the difference between the list price and the settlement price rises and marginally decreases with time on market. This empirical result is consistent with a perfect Nash equilibrium previously proposed in the model.     

城市住房价格指数编制方法的拓展设计及实证检验

科学监测城市房价走势,在当前环境下尤为重要。为拓展国际通行方法编制国内单一城市房价指数的适用性,引入样本匹配重复交易法构建房价指数,以提高样本容量与可比性。基于上海数据的实证结果表明,相较于传统重复交易法和特征价格法,样本匹配重复交易法能更准确地反映住房价格变动,结果异常波动性更小,噪声影响程度更低,在克服样本代表性误差和变量缺失误差方面效果更显著,对编制国内城市房价指数具有较好应用价值。     

Buyer information and the hedonic: The impact of a seller disclosure on the implicit price for airport noise

Revealed preference methods like the hedonic model generally assume economic agents have access to publicly available information and use it effectively. In the housing market, the recent proliferation of seller disclosure laws suggests that policymakers perceive buyers to be less than “fully informed,” presumably since they face higher information acquisition costs than sellers. The introduction of an airport noise disclosure in the residential housing market surrounding the Raleigh–Durham International Airport is used as a quasi-random experiment to analyze the impact of this type of information asymmetry between buyers and sellers on housing prices. The results from a regression analysis that controls for potential spatial and temporal confounders, suggest that the airport noise disclosure reduced the value of houses most heavily impacted by airport noise by 2.9 percent. This represents approximately a 37 percentage point increase in the implicit price of airport noise. The results provide evidence that publicly available information, such as that available for airport noise, may not be adequately considered by all buyers. They also suggest that the information environment should be carefully considered when using housing data and the hedonic model to value urban amenities and disamenities.     

ASSISTING DEMOBILIZED RUSSIAN OFFICERS OBTAIN HOUSING: THE HOUSING CERTIFICATE OPTION

Under the dwelling purchase certificate program a retired or demobilized Russian officer returning from the "near abroad" is given a certificate which he can use to purchase a new housing unit in the market. The certificate is priced at estimated market price of dwellings, and prices vary by unit size and location (region). There was great uncertainty when the program was launched as to whether officers would find units available for purchase. In fact, most officers succeeded in using their certificate and most contacted several sellers in searching for housing.     

基于向量自回归的存量住房房价租金比分析

1998年住房制度改革以来,房屋销售价格和租金均呈上涨趋势,但两者在增速上有明显的不同。本文基于动态Gordon模型,用一阶向量自回归的方法研究了8个城市房地产市场预期和非预期的房价租金比,结果表明向量自回归模型预测杭州、深圳、武汉、成都、北京的对数房价租金比效果较好,上海的房价租金比最不容易预测。未预料到的房价租金比的决定有明显的地区差异,西部地区的城市主要受租金流新信息的影响,长三角城市受收益率新信息的影响非常大,其他地区的城市主要受收益率新信息的影响。     

Convergence of Bayesian learning to general equilibrium in mis-specified models

A central unanswered question in economic theory is that of price formation in disequilibrium. This paper lays the groundwork for a model that has been suggested as an answer to this question in, particularly, Arrow [Toward a theory of price adjustment, in: M. Abramovitz, et al. (Ed.), The Allocation of Economic Resources, Stanford University Press, Stanford, 1959], Fisher [Disequilibrium Foundations of Equilibrium Economics, Cambridge University Press, Cambridge, 1983] and Hahn [Information dynamics and equilibrium, in: F. Hahn (Ed.), The Economics of Missing Markets, Information, and Games, Clarendon Press, Oxford, 1989]. We consider sellers that monopolistically compete in prices but have incomplete information about the structure of the market they face. They each entertain a simple demand conjecture in which sales are perceived to depend on the own price only, and set prices to maximize expected profits. Prior beliefs on the parameters of conjectured demand are updated into posterior beliefs upon each observation of sales at proposed prices, using Bayes’ rule. The rational learning process, thus, constructed drives the price dynamics of the model. Its properties are analysed. Moreover, a sufficient condition is provided, relating objectively possible events and subjective beliefs, under which the price process is globally stable on a conjectural equilibrium for almost all objectively possible developments of history.     

中国房地产交易真的是卖方市场吗？——基于双边随机边界模型的实证研究

科学测算房地产交易市场买卖双方议价能力对市场价格形成的影响作用，是当前政府制定“因地施策”宏观调控机制的重要前提。采用双边随机边界模型，考察房地产交易环节中买卖双方议价能力的差异,结果表明：（1）买卖双方讨价还价因素对商品房销售价格的最终形成存在显著影响；（2）从全国平均水平看，对于整体市场以及住宅、写字楼和商铺等细分市场，卖房者议价能力在双方讨价还价过程中占主导地位，但买方议价能力的影响作用也不容忽视；（3）从一线、新一线、二线和三线城市角度看，除了一线城市商铺市场以及三线城市总体城市、住宅市场和写字楼市场外，其他均处于卖方市场阶段。     

一类价格调整问题的数学模型及其求解方法

虽然市场需求是价格的函数，但企业在价格调整实践中往往不能直接获取需求函数的具体表达式，而只能在某一给定价格水平下观察到市场需求量的值。因此，企业通常不能直接利用需求函数来调整价格以完成预期的市场需求调整的战略计划。本文将企业为达到市场需求战略调整目的而考虑的价格调整问题归结为一个隐式互补问题。在该模型中，企业可以依据自身经营战略目标的调整相应地调整各类产品的市场价格，使得价格调整后的产品销量迭到预定的目标。文章给出了求解这类隐式互补问题的直接迭代法，并给出了数值结果。     

The effect of economic policy uncertainty on China’s housing market

This study examines the relationship between economic policy uncertainty (EPU) and housing price at the macro-level in China as a developing country. The empirical evidence indicates that EPU has a leading effect on China’s housing market. In general, the housing market is prosperous when economic policy is stable and there is a positive relationship between housing price variation and EPU, which means housing market risk grows under unstable economic policies in this developing economy. Moreover, economic policy variation affects low-amplitude changes in housing prices. A variation of policy uncertainty enhances the risk premium of the housing market. By contrast, the level of EPU influences high-amplitude changes in housing prices, which reflects the trend of EPU dominating China's housing market.     

Pricing used books on Amazon.com: a spatial approach to price dispersion

This paper estimates a spatial autoregressive (SAR) model of price dispersion using publicly available internet bookselling data. It uses a semiparametric adaptive estimator that does not require the usual Gaussian assumption of maximum likelihood (ML) estimators. The results suggest that both price competition and seller heterogeneity are key drivers of the observed price dispersion. The paper finds that sellers with large sales volume, newly established sellers and US mainland states-based sellers tend to price lower. The identified significant spatial interaction is evidence of spatial price competition. Controlling for everything else, a seller asks a lower price when large sellers charge relatively high prices, which is also evidence of price-based selling and undercutting.     

The regulatory tax and house price appreciation in Florida

Much attention was given to the soaring price of housing that took place in different parts of the country in the 1990s and the first half of the current decade. Traditional explanations for the increase include rising land values and costs of construction, but a strand of literature, popularized by Glaeser et al. [Glaeser, Edward L., Gyourko, Joseph, Saks, Raven, 2005a. Why have housing prices gone up? National Bureau of Economic Research Working Paper #11129; Glaeser, Edward L., Gyourko, Joseph, Saks, Raven, 2005b. Why is manhattan so expensive? Regulation and the rise in housing prices. The Journal of Law and Economics 48(2)], has looked at the role of land use regulations and posits that complying with them imposes a regulatory tax on housing consumers. In this paper, we apply and extend Glaeser and Gyourko’s methodology in order to estimate the regulatory tax on an individual house level in a set of Florida metropolitan areas. Our novel data address some of the quality measurement concerns raised about the Glaeser and Gyourko methodology and allow us to look at the evolution of the regulatory tax over a 10-year period. We find that the tax is an important component of sales price and that as a percentage of sales price has increased in a majority of Florida’s MSAs. In addition, we decompose the overall house price increase into land, materials and regulatory components and find that increasing stringency in the regulatory environment within Florida represents a substantial portion of the run-up in house prices in most metropolitan areas.     

Self-reinforcing effects between housing prices and credit

The financial crisis has brought the interaction between housing prices and household borrowing into the limelight of the economic policy debate. This paper examines the nexus of housing prices and credit in Norway within a structural vector equilibrium correction model (SVECM) over the period 1986q2–2008q4. The results establish a two way interaction in the long-run, so that higher housing prices lead to a credit expansion, which in turn puts an upward pressure on prices. Interest rates influence housing prices indirectly through the credit channel. Furthermore, households’ expectations about the future development of their own income as well as in the Norwegian economy have a significant impact on housing price growth. Dynamic simulations show how shocks are propagated and amplified. When we augment the model to include the supply side of the housing market, these effects are dampened.     

Can boundedly rational sellers learn to play Nash?

How does Nash pricing compare to pricing with adaptive sellers using reinforcement learning (RL)? We consider a market game similar to Varian’s model (Am Econ Rev 70:651–659, 1980) with two types of consumers differing by the size of their fixed sample search rule and derive the Nash search equilibrium (NSE) strategy (the density, the mean and the variance of the posted price distribution). Our findings are twofold. First, we find that the RL price distribution does not converge in a statistical sense to the NSE one except when competition is à la Bertrand. Second, we show that the qualitative properties of the NSE with respect to a change in buyers‘ search behavior are still valid for the RL distribution. The average price and the variance of both price distributions exhibit similar variations to a change in buyers’ search.