The Efficiency of Housing Search

Abstract

Previous research in the housing market has largely focused on housing market outcomes (e.g., the quantity of housing services demanded or supplied or the determination of equilibrium prices); scant attention has been directed at the processes producing these outcomes. Recently, economists have developed models of buyer and seller search processes in housing markets [6; 22], but almost no empirical testing of these models has been done.' The importance of search in economic markets has been discussed by Lippman and McCall [15]. The difficulties encountered by deterministic theories of economic markets in explaining different prices for identical commodities and persistent positive levels of unemployed resources are overcome when search is introduced. Search may be of even greater importance in housing markets than in most other economic markets. Housing generally accounts for the largest item of consumption for most households; for homeowners, housing is usually the household's largest asset. Housing is a heterogeneous commodity that is traded in highly decentralized markets.2 The costs of moving can be substantial, reducing the gains from relocation. The consumption of housing also involves externalities that add to the heterogeneity of the consumption bundle. Finally, recent theoretical work by Courant [6] suggests that the rational search behavior of households facing discrimination in housing markets might act to perpetuate adverse market conditions facing such households. Given the importance of housing as a consumption commodity and as an asset and the above characteristics of housing and housing markets, previous descriptive examinations