Presale, Credit Constraints and Housing Supply

Homebuilders finance projects using bank loans and presales, making presale
timing and pricing relevant to credit frictions, housing supply, and affordability.
Data from Israel in the 2010s indicates a 5.6% average cost premium for presale
funding relative to bank loans, indicating credit frictions. A new model captures
the key tradeoffs faced by builders and buyers. Calibration shows that relaxing
credit frictions increases housing supply and welfare but also raises standard price
indexes that ignore sale timing. This occurs because builders substitute away
from presales toward bank borrowing, reducing the share of early (typically lower-
priced) transactions in observed sales.