Abstract
We use a housing search model and data on individual home listings to decompose fluctuations in home sales and price growth into supply or demand factors. Simulations of the estimated model show that housing demand drives short-run fluctuations in home sales and prices, while variation in supply plays only a limited role. We consider two implications of these results. First, we show that reduction of supply was a minor factor relative to increased demand in the tightening of housing markets during COVID-19. New for-sale listings would have had to expand 30 percent to keep the rate of price growth at pre-pandemic levels given the pandemic-era surge in demand. Second, we estimate that housing demand is very sensitive to changes in mortgage rates, even more so than comparable estimates for home sales. This suggests that policies that affect housing demand through mortgage rates can influence housing market dynamics.
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