Price dispersion and time-on-market in the housing market

Abstract

Imperfect and costly information generates price dispersion in the market. This study employs data on housing assets listed for sale on a leading online classified home service in Israel to assess the effect of quality-adjusted housing price dispersion on time-on-market. Using survival analysis estimation, we find evidence that the hazard rate of sale significantly decreases with quality-adjusted price dispersion: a 1% increase in the standard deviation of the quality-adjusted housing price is associated with a decrease of about 0.63% in the likelihood of a sale. Results are robust to a series of model and sample specifications. As information is associated with decreased price dispersion in the market, our study supports the call for increased availability of information in real estate markets that would decrease time-on-market and transaction costs associated with the time, search, and negotiation required for achieving a transaction.