Price-volume Correlation in the Housing Market: Causality and Co-movements (P.15)

Table 2 reports the estimation results of the first specification. The results indicate
that labor market shocks affect both prices and trading volume in housing markets.
On the one hand, both the total non-agricultural employment and the average
household income positively affect both the prices and trading volume in housing
markets, and the effects are statistically significant. On the other hand, the
unemployment rate has an interesting impact on housing markets. Increases in the
unemployment rate increase (albeit insignificantly) home prices and significantly
reduce trading volume. This seems to be consistent with the spatial lock-in
phenomenon (see Chan 2001, for example) which states that home sellers who are
hurt by the increased unemployment rate are likely to be subjected to financial
constraints and thus need to raise their asking prices (so that the proceeds from
selling their homes would be large enough to repay their mortgage and provide a
down payment on a new home). This behavior shifts the supply curve upwards and
thus causes lower trading volume and higher transaction prices.
Table 2 confirms the importance of the mortgage market in the determination of
prices and trading volume. When the mortgage rate is high (low), home prices are
significantly low (high), and so is trading volume. Furthermore, when the mortgage
rate demonstrates a rising (falling) trend, both home prices and trading volume
increase (decrease), which is consistent with the potential homebuyers’ rational
behavior, although other possibilities can not be ruled out. When the mortgage rate is
rising, potential homebuyers would be better off purchasing sooner and locking in
the mortgage rate. Yet, when the rate is falling, it seems rational for them to wait and
postpone their home purchases. The effects of the mortgage level and trend are
consistent with shifts of the housing demand.
It is interesting that the stock market has significant effects on the price and
turnover in the housing market. First, home prices are significantly lower, and the
trading volume is (insignificantly) higher when the S&P 500 index is higher, which

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