Essays on Housing Market Search and Dynamics

Abstract

This dissertation comprises two papers on search in the housing market. The first paper looks at the effects of equity constraints and loss aversion on the home selling problem. The empirical findings are consistent with a search model where sellers with low equity in their homes and sellers subject to nominal losses have higher reservation prices because of downpayment constraints and loss aversion, and thus hold out for higher prices. The second paper formalizes the home selling problem with a theoretical model. In the model, sellers are uncertain about the distribution of buyer valuations for their particular house, and they learn endogenously about the parameters of this distribution in a Bayesian fashion. I use dynamic programming techniques, simulated method of moments, and a rich dataset on home listings and home transactions of single-family homes in Los Angeles to estimate the parameters of the model. Simulations of the model are informative about the value of information and housing price dynamics.