Friday, September 26, 2008

Houses cost more in the summer. Here’s why

Tim Harford, reporting on the work of Rachel Ngai and Silvana Tenreyro of the London School of Economics, suggests it has to do with the thickness of the market.

He says "If Ngai and Tenreyro are right, then the housing market dynamic is something like this: buyers slightly prefer to buy houses in the summer, so house prices are slightly higher in the summer, so sellers prefer to put their houses on the market in the summer, and with more houses on the market, the market is thicker. That means that buyers are more likely to find the exact house they want, and so are willing to pay more; with prices higher, more sellers are attracted into the summer market, and fewer will contemplate selling in the winter. And so on. The self-reinforcing process can produce a large gap between summer and winter prices."

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