The dynamics of prices, liquidity, and vacancies in the housing market

The recent housing market crash coincided with a sharp increase in average selling times. In other words there was a sharp decrease in liquidity. Around the same time there was also a substantial increase in the vacancy rate. I examine what caused these events, and whether they were related in any way. I formulate a multi-sector neoclassical growth model featuring a housing market with search frictions. The model includes shocks to the production technologies of both consumption and construction goods. In addition, when agents move they pay a stochastically varying transaction cost. I estimate the model using U.S. data spanning the last half century. Although house prices and liquidity display a regular seasonal co-movement, they are otherwise essentially unrelated. Prices appear to be primarily determined by productivity in the consumption sector, liquidity by transaction costs, and vacancies by productivity in the construction sector.