The Thinness of Real Estate Markets

How thin is the housing market?  We identify thinness with the dispersion of ‘serious’ buyers’ willingness to pay, which we note incorporates not only value in use but also value in search (Satterthwaite and Shneyerov, 2007, 2008).  The thinner the market, the more relevant is the search and matching framework, rather than the standard Walrasian, for analyzing the market. We infer the dispersion of buyers’ values from how price reacts to the number of bidders, as reported by recent buyers in a survey we ran in a large North American urban area.  The survey’s novel feature is respondents’ report on the number of buyers competed against in purchasing the home.