Abstract
The paper relates the documented smoothness of housing repeat-sale indices growth to time-varying changes in local economic conditions. Empirically, a metro economic condition index serves as a moderator variable in a dynamic partial equilibrium model that connects price appreciation to innovations in trading volume. The estimated moderation effect substantially dampens the long-run response to shocks in volume. Overall, the empirical findings are consistent with theoretical models that hypothesize that sellers’ reservation prices change counter-cyclically, thus smoothing repeat-sale index price appreciation.
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