The search and matching process in the housing market: Explaining the phenomenon of the house price dispersion

Abstract

Purpose

This paper aims to study the phenomenon known as “house price dispersion”, one of the most important distinctive features of housing markets. House price dispersion refers to the phenomenon of selling two houses with very similar attributes and in near locations at the same time but at very different prices.

Design/methodology/approach

This theoretical paper makes use of a search and matching model of the housing market. The search and matching models are the benchmark models of the “matching” markets, such as the labour market and the housing market, where trade is a decentralised, uncoordinated and time-consuming economic activity.

Findings

Unlike the previous related literature that attributes to the heterogeneity of buyers and sellers a significant part of the price volatility, in this paper, the house price dispersion depends on the housing tenure status of home-seekers in the house search process. Indeed, in the presence of different housing tenure status of home-seekers, the house search process leads to different types of matching. In turn, this implies different surpluses (the sum of the net gains of the parties involved in the trade), and eventually, different surpluses produce different prices of equilibrium.

Research limitations/implications

An interesting research agenda for future works would be an extension of the model to study the effect of “online housing search” on the house search and matching process, and thus, on the house price dispersion.

Practical implications

The main practical implication of this work is that the house price dispersion is an inherent phenomenon in the house search and matching process.

Originality/value

None of the existing and related works of research have considered how to take advantage of the search and matching approach to deal with the phenomenon known as “house price dispersion”, without relying on the ex ante heterogeneity of the parties but looking at the “core” of the house search and matching process.

Citation

Lisi, G. (2019), "The search and matching process in the housing market: Explaining the phenomenon of the house price dispersion", Journal of European Real Estate Research, Vol. 12 No. 3, pp. 380-391. https://doi.org/10.1108/JERER-02-2019-0003