Borrowing constraints and housing market liquidity

We study how changes in household borrowing constraints influence housing market liquidity. To this end, we develop a housing market model with both matching and credit frictions. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. In the model, housing market liquidity is very sensitive to changes in household credit conditions. In particular, a moderate tightening of household borrowing constraints increases the average time-on-the-market and idiosyncratic price dispersion substantially.

Publication info

Series
Other articles 775
Date
16.02.2018
Keywords
Housing, Borrowing constraint, Matching
Jel
E21, R21, C78
Pages
21
Availability
Available
Language
English
Publication on other services
doi.org