A Theory of Liquidity in Residential Real Estate Markets

  title={A Theory of Liquidity in Residential Real Estate Markets},
  author={John Krainer},
  • John Krainer
  • Published 2015
A ‘‘hot’’ real estate market is one where prices are rising, average selling times are short, and the volume of transactions is higher than the norm. ‘‘Cold’’ markets have the opposite characteristics: prices are falling, liquidity is poor, and volume is low. This paper provides a theory to match these observed correlations. I show that liquidity can be good while prices are high because the opportunity cost of failing to complete a transaction is high for both buyers and sellers. I also show… CONTINUE READING
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