How Well Does Search Theory Explain Housing Prices?

Abstract

This paper studies housing markets with price posting, directed search, and heterogeneity. One contribution is theoretical: in a novel model, we provide sharp results on existence, uniqueness and comparative statics. Another is empirical: we explore a new dataset from Vancouver. Then we confront theory and data. The framework is broadly consistent with evidence, and, in particular, generates price dispersion and stickiness. Beyond broad consistency, we develop formal methods for identification and estimation. Structural estimation reveals that accounting for price dispersion by search requires extreme assumptions. Hence we explore implications of specifications where
search and unobserved heterogeneity both contribute to dispersion.