Presented by Ekaterina Chernobai page 1 ERES 2011, Eindhoven 1 The Determinants of Buyer Search Duration in “Hot” and “Cold” Residential Real Estate Markets Ekaterina Chernobai • California State Polytechnic University, Pomona, U.S.A. College of Business Administration Department of Finance, Real Estate, and Law • University of Nürtingen, Germany (Visiting Professor) Department of Real Estate Management Tarique Hossain • California State Polytechnic University, Pomona, U.S.A. College of Business Administration Department of International Business and Marketing
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The Determinants of Buyer Search Duration in “Hot” and “Cold” Residential Real Estate Markets
The Determinants of Buyer Search Duration in “Hot” and “Cold” Residential Real Estate Markets. Ekaterina Chernobai California State Polytechnic University, Pomona, U.S.A. College of Business Administration Department of Finance, Real Estate, and Law - PowerPoint PPT Presentation
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Presented by Ekaterina Chernobai page 1ERES 2011, Eindhoven 1
The Determinants of Buyer Search Duration in “Hot” and “Cold” Residential Real Estate Markets
Ekaterina Chernobai
• California State Polytechnic University, Pomona, U.S.A. College of Business Administration
Department of Finance, Real Estate, and Law• University of Nürtingen, Germany (Visiting Professor)
Department of Real Estate Management
Tarique Hossain
• California State Polytechnic University, Pomona, U.S.A.College of Business AdministrationDepartment of International Business and Marketing
Presented by Ekaterina Chernobai page 2
Idea
Housing liquidity
Time on the market Time to buy
Seller side Buyer side
We analyze:
• Determinants of search duration
• Differences in the effects in “hot” and “cold” housing markets
• Differences between private investors and non-investors
Also:
• Effects of “subprime crisis”
ERES 2011, Eindhoven
Presented by Ekaterina Chernobai page 3
Idea
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Los Angeles MSA
Composite 10
Composite 20
2004-2005 survey of recent house buyers
We run: 2007-2008 survey of recent house buyers
• Same geographic area in Southern California – most pronounced “bubble”• Same average house price in both time periods
January 2000 = 100
ERES 2011, Eindhoven
Presented by Ekaterina Chernobai page 4
Idea
Geographical coverage of the surveys
San Luis Obispo county
Santa Barbara county
Ventura county
San Francisco
Los Angeles
San Diego
ERES 2011, Eindhoven
California
Presented by Ekaterina Chernobai page 5
Idea
Some past studies of search duration:
• Case and Shiller (1988) “The Behavior of Home Buyers in Boom and Post-Boom Markets”
- House purchases during 1-year period
- Different geographic locations
- Some with rising some with declining prices
• Baryla, Zumpano, Elder (2000) “An Investigation of Buyer Search in the Residential Real Estate Market under Different Market Conditions”
- Houses purchased in different interest rate periods
- Different geographic locations (entire country)
ERES 2011, Eindhoven
Presented by Ekaterina Chernobai page 6
Idea
• Krainer and LeRoy (2002) “Equilibrium Valuation of Illiquid Assets”
- Theoretical general equilibrium model of housing transactions
- Buyers’ valuations of houses are heterogeneous
- Weigh the search cost against the expected life-time utility less price
- Equilibrium: Longer expected stay in a house increases search duration
• E. Chernobai (working paper) “When Does Mobility Reduce Liquidity”
- Theoretical model that generalizes Krainer & LeRoy’s
- Short-term and long-term buyers
- Equilibrium: Long-term buyers search longer than short-term buyers
ERES 2011, Eindhoven
Presented by Ekaterina Chernobai page 7
Research Questions
Questions of interest:
1.) Any effect of expected housing tenure on realized search duration?
2.) Are consumption-buyers different from investor-buyers?
3.) Any differences in 1.) and 2.) between “hot” and “cold” markets?
Our hypotheses:
Positive relationship if buy for consumption
Investors:- Time pressure to buy: Yes? No?- What does a typical consumption-
buyer want?
Short-term investors vs.Long-term investors
- Time to buy is shorter in “hot” market- Investors: Rel. proportion of short- &
long-term investors varies over time
ERES 2011, Eindhoven
Results
Presented by Ekaterina Chernobai page 8
Survey 2004-2005 recent house-buyers
Mailed 6,000 questionnaires
Response rate: 11.3% (661)
Survey 2007-2008 recent house-buyers
Mailed 6,200 questionnaires
Response rate: 11.6% (719)
“Hot” market “Cold” market
ERES 2011, Eindhoven
Results
Presented by Ekaterina Chernobai page 9
Variable Pooled “Hot” “Cold” Difference in means (p-value)Time To Buy 6.80 5.35 8.06 0.000***
First 0.24 0.25 0.23 0.538
Offers 1.78 1.83 1.74 0.279
New 0.09 0.07 0.10 0.076*
Miles 201.40 178.49 221.33 0.251
Price 612,625 602,267 621,900 0.284
Moving Up 0.32 0.32 0.32 0.987
Coast 0.38 0.40 0.36 0.336
Fixed 0.53 0.41 0.63 0.000***
HighLTV 0.34 0.33 0.35 0.504
1-5 years 0.34 0.41 0.27 0.000***
6-10 years 0.22 0.20 0.24 0.158
10+ years 0.37 0.31 0.42 0.000***
1-5 years *Investor 0.04 0.07 0.02 0.001***
6-10 years *Investor 0.01 0.01 0.02 0.281
10+ years*Investor 0.01 0.01 0.01 0.674
Investor 0.09 0.11 0.07 0.074*
Winter 0.16 0.06 0.25 0.000***
Spring 0.22 0.23 0.22 0.523
Summer 0.29 0.32 0.26 0.060*
Fall 0.32 0.38 0.27 0.001***
(months)
Correlation matrix:
no issues
DESCRIPTIVE STATISTICS
ERES 2011, Eindhoven
Results
Presented by Ekaterina Chernobai page 10
Variable Pooled Hot market Cold marketIntercept 0.899 (<0.0001) 0.305 (0.1277) 0.291 (0.1440) -0.434 (0.1259) 0.887 (0.0008)