July 2012

Information Frictions and Housing Market Dynamics

Elliot Anenberg


This paper examines the effects of seller uncertainty over their home value on the housing market. Using evidence from a new dataset on home listings and transactions, I first show that sellers do not have full information about current period demand conditions for their homes. I incorporate this type of uncertainty into a dynamic search model of the home selling problem with Bayesian learning. Simulations of the estimated model show that information frictions help explain short-run persistence in price appreciation rates and a positive (negative) correlation between price changes and sales volume (time on market).

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Keywords: Learning, housing search

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Last Update: July 10, 2020