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Hot and Cold Markets
Author(s) -
NovyMarx Robert
Publication year - 2009
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2009.00232.x
Subject(s) - shock (circulatory) , economics , database transaction , position (finance) , stock (firearms) , demand shock , microeconomics , monetary economics , finance , medicine , mechanical engineering , computer science , engineering , programming language
This article considers why housing market conditions, including the ratio of buyers to sellers, expected time‐to‐sale and transaction prices are sensitive to fundamentals. These high sensitivities result from feedback: market participants optimally respond to shocks in a manner that amplifies a shock's initial impact, which in turn elicits further reinforcing responses. For example, a positive demand shock brings more buyers into a market. This improves the bargaining position of sellers, who then sell more quickly, decreasing the stock of sellers in the market. This further increases the relative number of buyers to sellers, amplifying the initial shock.