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Here Lives a Wealthy Man: Price Rigidity and Predictability in Luxury Housing Markets

Author

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  • Daniel Levy

    (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; Rimini Centre for Economic Analysis)

  • Avichai Snir

    (Netanya Academic College, Israel)

Abstract

We use novel and unique data to study the effect of price changes in the market for luxury and middle class homes. We find that luxury home sales respond less to price changes than the middle-class home sales; in the market for luxury homes, past prices affect current prices; luxury home prices persist; and prices of luxury homes are stickier than prices of middle-class homes. Recent macroeconomic models predict that housing markets can have counter-cyclical effect, if home prices are flexible. Our findings imply that home prices, especially luxury home prices, may not be flexible enough to generate such effect.

Suggested Citation

  • Daniel Levy & Avichai Snir, 2018. "Here Lives a Wealthy Man: Price Rigidity and Predictability in Luxury Housing Markets," Working Paper series 18-16, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:18-16
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    More about this item

    Keywords

    housing market; luxury housing; housing demand; price rigidity; sticky prices; predictability; Veblen effect;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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