House Price Momentum and Strategic Complementarity
By Adam M. Guren. Journal of Political Economy, 2018
126 citations recorded by the source corpus.
House prices exhibit substantially more momentum, positive autocorrelation in price changes, than existing theories can explain. I introduce an amplification mechanism to reconcile this discrepancy. Sellers do not set a unilaterally high or low list price because they face a concave demand curve: increasing the price of an above-average-priced house rapidly reduces its sale probability, but cutting the price of a below-average-priced house only slightly improves its sale probability. The resulting strategic complementarity amplifies frictions because sellers gradually adjust their price to stay near average. I provide empirical evidence for concave demand using a quantitative search model that amplifies momentum two- to threefold.
Subfields: Economics and Econometrics, Marketing
View Paper: https://www.semanticscholar.org/paper/ceddcab841bb2cb73a5bcc9c5f19919d34de5b92
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In Economics and Econometrics
- Timothy J McQuade
- Adam M. Guren
- Arvind Krishnamurthy
- Xavier Vives
- Annette Vissing-Jorgensen
- Ricardo J. Caballero
- Claudio E. Raddatz
- Enrique G. Mendoza
In Marketing
Citations in the corpus
- House Price Beliefs And Mortgage Leverage Choice (2017, unknown): “For example, in Appendix A.4 we show that under a standard AR(1) process for house price changes, with an annual persistence of 0.65 as estimated by Guren (2018), a one-percentage-point increase in the standard deviation of house price changes over the next year translates into a 4.5 percentage…”
- Mortgage Design in an Equilibrium Model of the Housing Market (2018, background): “00% of the housing stock was foreclosed upon from 2006 to 2013 (Guren and McQuade (2020)).”