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List price and sales prices of residential properties during booms and busts

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  • Haurin, Donald
  • McGreal, Stanley
  • Adair, Alastair
  • Brown, Louise
  • Webb, James R.

Abstract

This paper investigates the relationship between the list and sale price of residential properties over the housing cycle. In down or normal markets the list price generally exceeds the sales price; however, when the housing market is strong, homes sell for more than their list price. This observation is not consistent with the assumptions made in the standard model of home sellers’ search behavior. We consider alternative models. In one, sellers set list prices based on their expectations of future changes in sales prices and the arrival rate of buyers; however, demand shocks occur. This model partially explains our data from the Belfast, U.K. housing market, but it fails to predict the list to sales price ratio during a sustained housing boom. We next describe a model where sellers’ endogenously select their search mechanism depending on the strength of the housing market. We find support for the conjecture that sellers switch to an auction-like model during housing booms. There also is evidence that during a downturn in the market, sellers’ list prices are sticky.

Suggested Citation

  • Haurin, Donald & McGreal, Stanley & Adair, Alastair & Brown, Louise & Webb, James R., 2013. "List price and sales prices of residential properties during booms and busts," Journal of Housing Economics, Elsevier, vol. 22(1), pages 1-10.
    • Handle: RePEc:eee:jhouse:v:22:y:2013:i:1:p:1-10
    DOI: 10.1016/j.jhe.2013.01.003
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    More about this item

    Keywords

    List price; Sale price; Residential housing; Time on market; Search models;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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