Research


Recent Publication


This paper presents a life-cycle model of housing demand with uncertain house prices and lumpy transaction costs. The paper extends the (S, s) methodology to a non-stationary discrete time framework with multivariate stochastic price processes. This allows the characterization of a self-hedging mechanism in an incomplete housing market: households use earlier accumulated housing wealth to hedge against future housing cost risk. As a result, the direction of the effect of price uncertainty on housing demand depends critically on households’ future housing consumption plans. When price uncertainty increases, households consume (and thereby invest in) less housing if they plan to realize the housing wealth gain. However, they will instead take a larger housing position if they plan to move to a bigger home in a correlated housing market in the future.

Working Paper


Using the household level panel data, this paper estimates a dynamic housing demand model, accounting for the role of future housing consumption plans and lumpy transaction costs. The results show that the net effect of price uncertainty on housing demand depends on a household's expected geographical mobility and its tendency to roll over. Moreover, there is considerable heterogeneity in the hedging behavior across households and across the stages of the life-cycle.

In this article we provide an empirical framework to study entry and cost inefficiency in the real estate brokerage industry. Building on recent empirical work on games of incomplete information, we develop an equilibrium model that incorporates unique features of this industry. Using individual-level data on entry and revenues, we estimate our entry model to recover the cost function. Based on estimated costs, we directly test for cost inefficiency due to free entry and find evidence for a loss of economies of scale and wasteful non-price competition. We further use the estimated model to evaluate welfare implications of prohibiting rebates on commissions. We find that rebate bans are welfare-reducing, not only because they discourage price competition, but also because they encourage excessive entry. In particular, removing these rebate bans would decrease the equilibrium number of realtors by 7.2% and reduce total variable costs by 4.1%.

Standard risk-return tradeoff theory cannot explain why housing return varies with risk positively in some markets but negatively in some other markets. This paper addresses this issue by incorporating two unique features of housing into a standard consumption-based asset pricing model: (1) intertemporal hedging incentives and (2) a kinked housing supply function. The model nests two competing effects of price risk on housing return: a financial risk effect associated with owning risky housing asset, and a consumption insurance effect associated with using the current house to hedge against future housing cost risk. The empirical findings confirm several equilibrium predictions implied by the model. In particular, the variation in housing risk-return relationship across markets is driven by both local households’ hedging incentives and housing supply constraints.
Housing markets clear, in part, through the time that buyers and sellers spend on the market.  We show that demand generally leads to lower seller time on the market and the number of homes that buyers visit, while buyer time on the market is much less sensitive to demand.  Furthermore, seller time on the market and homes visited are much more sensitive to demand growth than its level, consistent with sellers responding to demand increases with a lag.  We also show that buyer and seller time on the market is positively associated.  That correlation, which suggests a hot vs. cold market variation, is partially explained by varying conditional transaction probability, as proxied by number of homes visited.

Work in Progress


  • Search and Bidding: Evidence from Toronto Housing Markets (with David Genesove)
  • Housing Bubbles: A Spatial Approach (with David Genesove)
  • Competition and Compensation in the Real Estate Brokerage (with David Genesove)