Please use this identifier to cite or link to this item: https://doi.org/10.1111/j.1540-6229.2012.00345.x
Title: Why do sellers hold out in the housing market? An option-based explanation
Authors: Qian, W. 
Issue Date: Jun-2013
Citation: Qian, W. (2013-06). Why do sellers hold out in the housing market? An option-based explanation. Real Estate Economics 41 (2) : 384-417. ScholarBank@NUS Repository. https://doi.org/10.1111/j.1540-6229.2012.00345.x
Abstract: In the residential housing market, home owners are reluctant to sell in a declining market. We build a model which focuses on the embedded call option associated with home ownership that allows owners to delay the (irreversible) sale. When prices are low, the (opportunity) cost of a sale, i.e., a higher implied gain from a future sale, likely exceeds its immediate trade benefit and an owner is better off waiting for market conditions to improve. The model also highlights the importance of supply conditions: a more constrained supply is associated with a longer delay. Using state-level residential housing data, we find evidence consistent with the model. Transaction volume is increasing (decreasing) in the rental growth rate (volatility) in the cross section; their effects are amplified in areas with low supply elasticities, and in times with low market prices. Overall, this paper provides a rational explanation for delayed trading decisions in the housing market. © 2012 American Real Estate and Urban Economics Association.
Source Title: Real Estate Economics
URI: http://scholarbank.nus.edu.sg/handle/10635/114958
ISSN: 10808620
DOI: 10.1111/j.1540-6229.2012.00345.x
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