Do housing sales drive prices or the converse?
By: [by] William C. Wheaton [and] Nai Jia Lee
Contributors: Lee, Nai Jia; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 08-01; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 08-01.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Number of pages: 25
Description: This empirical paper examines the question of whether movements in housing sales predict subsequent movement in house prices - or the converse. The former (positive) relationship is well hypothesized by several frictional search models of housing market transactions or "churn". The latter relationship has been hypothesized by two theories. Both loss aversion and liquidity or down-payment constraints suggest another positive relationship in which lower prices generate lower sales volume. Our contribution to the problem of unraveling causality is to use a panel of 101 markets over the period from 1980 through 2006. With several different estimation techniques we conclusively find that higher sales volume always generates higher subsequent prices. Higher prices, however always generate lower subsequent sales volume. Our conclusion is that theories of housing loss aversion or financial down payment constraints just are not consistent with the aggregate movements in prices and sales. JEL Classifications: R31, R22.
Notes: "January 28, 2008."

Includes bibliographical references (leaves [20]-[21]).

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