Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects.

This paper presents a simple model of trade in the housing market. The crucial feature is that a minimum down payment is required for the purchase of a new home. The model has direct implications for the volatility of house prices as well as for the correlation between prices and trading volume. The model can also be extended to address the correlation between prices and time-to-sale as well as certain aspects of the cyclical behavior of housing starts. Copyright 1995, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.