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How do market conditions impact price-TOM relationship? Evidence from real estate owned (REO) sales

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  • An, Zhiyong
  • Cheng, Ping
  • Lin, Zhenguo
  • Liu, Yingchun

Abstract

Empirical evidence on the relationship between real estate price and selling time (time-on-market (TOM)) is mixed as to whether the price-TOM relationship is positive or negative. Competing theories also suggest opposite predictions about TOM’s impact on selling price. The article examines the price-TOM relationship against the background of varying market conditions and highlights the impact of these conditions on the relationship. The theoretical analysis extends search theory and Lazear’s model to changing market conditions and reconciles their predictions on the relationship. The empirical analysis refines the investigation of the price-TOM relationship by revealing the cross-effect of market conditions and TOM on price. The findings confirm that the price-TOM relationship can indeed be positive or negative depending on these conditions. However, except for the case of an extremely bad market, the relationship is generally positive. This outcome occurs because search effort (indicated by TOM) brings significant price benefit that is large enough to offset all but the worst market price declines. Additional analysis confirms that the findings are not altered by the potential endogeneity between price and TOM.

Suggested Citation

  • An, Zhiyong & Cheng, Ping & Lin, Zhenguo & Liu, Yingchun, 2013. "How do market conditions impact price-TOM relationship? Evidence from real estate owned (REO) sales," Journal of Housing Economics, Elsevier, vol. 22(3), pages 250-263.
    • Handle: RePEc:eee:jhouse:v:22:y:2013:i:3:p:250-263
    DOI: 10.1016/j.jhe.2013.07.003
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    2. Marcus T. Allen & Justin D. Benefield & Christopher L. Cain & Norman Maynard, 2024. "Distressed Property Sales: Differences and Similarities Across Types of Distress," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 318-353, February.
    3. Donner, Herman & Song, Han-Suck & Wilhelmsson, Mats, 2016. "Forced sales and their impact on real estate prices," Journal of Housing Economics, Elsevier, vol. 34(C), pages 60-68.
    4. Oded Palmon & Ben J. Sopranzetti, 2017. "On the relationship between the number of a broker’s real estate listings and transaction outcomes," Review of Quantitative Finance and Accounting, Springer, vol. 49(1), pages 65-89, July.
    5. Tatiana Cesaroni, 2022. "Average time to sell a property and credit conditions: Evidence from the Italian housing market survey," Bulletin of Economic Research, Wiley Blackwell, vol. 74(1), pages 49-68, January.
    6. Eli Beracha & Julia Freybote & Zhenguo Lin & Michael J. Seiler, 2024. "Time on Market and the Cash Discount for Condos," The Journal of Real Estate Finance and Economics, Springer, vol. 68(2), pages 188-217, February.
    7. Xin He & Zhenguo Lin & Yingchun Liu & Michael J. Seiler, 2020. "Search Benefit in Housing Markets: An Inverted U‐Shaped Price and TOM Relation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(3), pages 772-807, September.
    8. Galesi, Alessandro & Mata, Nuria & Rey, David & Schmitz, Sebastian & Schuffels, Johannes, 2020. "Regional Housing Market Conditions in Spain," Research Memorandum 029, Maastricht University, Graduate School of Business and Economics (GSBE).

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