Type: Working Paper
Housing prices and credit constraints in competitive search
Working Paper, UC3M Working Papers, Economics, 2022/14
DÍAZ, Antonia, JEREZ, Belén, RINCÓN-ZAPATERO, Juan Pablo, Housing prices and credit constraints in competitive search, UC3M Working Papers, Economics, 2022/14 - https://hdl.handle.net/1814/74843
Retrieved from Cadmus, EUI Research Repository
This paper shows that, when utility is imperfectly transferable and the search process is competitive (or directed), wealthier buyers pay higher prices to speed up transactions. This result is established in a dynamic model of the housing market where households save both to smooth consumption and to build a down payment. "Block recursivity" is ensured by the existence of risk-neutral housing intermediaries. The calibrated version of our benchmark economy features greater indebtedness and higher housing prices in the long run compared to aWalrasian model, especially when the elasticity of new housing supply is low. We also show that the long-run effect of greater credit availability on housing prices depends crucially on whether or not rental and real estate housing stocks are segmented. Under full segmentation, price effects are much larger, with and without search frictions. But, even if there is no segmentation, these effects are substantial in our search model when supply elasticity is low, being larger than in the Walrasian version of the model. The last result is reversed with full segmentation, when search frictions dampen the price effect of the credit expansion.
Cadmus permanent link: https://hdl.handle.net/1814/74843
Series/Number: UC3M Working Papers; Economics; 2022/14
Publisher: Universidad Carlos III de Madrid
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