Housing transactions by moving homeowners take two steps - buying a new house and selling the old one. This paper argues that the transaction sequence decisions of moving homeowners have important effects on the housing market. Moving homeowners prefer to buy first whenever there are more buyers than sellers in the market. However, this congests the buyer side of the market and increases the buyer-seller ratio, further strengthening the incentives of other moving owners
to buy first. This endogenous strategic complementarity leads to multiple steady state equilibria and large fluctuations, which are broadly consistent with stylized facts about the housing cycle.
- search frictions
- order of transactions
- strategic complementarity
- self-fulfilling fluctuations