Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67821
Authors: 
Head, Allen
Lloyd-Ellis, Huw
Sun, Hongfei
Year of Publication: 
2011
Series/Report no.: 
Queen's Economics Department Working Paper 1276
Abstract: 
We characterize the dynamics of relative house prices, construction rates and population growth across US cities. In response to fluctuations in relative incomes, we find that population growth rates adjust more rapidly than construction rates in the short run and that price appreciation exhibits considerable serial correlation in the shortrun and mean reversion in the long-run. We develop a competitive search model of the housing market in which construction, the entry of buyers, house prices and rents are endogenously determined in equilibrium. Our theory generates dynamics that are qualitatively consistent with our empirical observations. In particular, in a version of the economy calibrated to match long-run features of the housing market in U.S. cities, variation in the time it takes to sell a house (i.e. the house's liquidity) induces house values and transaction prices to exhibit momentum, or serially correlated growth.
Subjects: 
house prices
liquidity
search
construction
dynamic panel
JEL: 
E30
R31
R10
Document Type: 
Working Paper

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