Housing search frictions and optimal search

Abstract

By deriving a ‘housing market Hosios condition’, we show that the main conclusions of the seminal paper on housing search frictions by Wheaton (1990) were erroneously derived. We show that households may search too much, optimally, or too little, which is in contrast to the paper’s conclusion that they always search too little. Furthermore, we show that exogenous increases in housing vacancies always have a negative effect on house prices, given standard assumptions.