Speculative dynamics of prices and volume

Using data on 50 million home sales from the last U.S. housing cycle, we document that much of the variation in volume came from the rise and fall in speculation. Cities with larger speculative booms have larger price booms, sharper increases in unsold listings as the market turns, and more severe busts. We present a model in which predictable price increases endogenously attract short-term buyers more than long-term buyers. Short-term buyers amplify volume by selling faster and destabilize prices through positive feedback. Our model matches key aggregate patterns, including the lead-lag price-volume relation and a sharp rise in inventories.(c) 2022 Elsevier B.V. All rights reserved.

Automated summary

Using data from 50 million home sales during the previous housing cycle in the United States, this study finds that the variation in sales volume is largely influenced by speculation. Cities that experienced larger speculative booms also had larger price booms, more significant increases in unsold listings during market downturns, and more severe economic downturns. The study presents a model that explains how predictable price increases attract short-term buyers who contribute to higher trading volume and destabilize prices through positive feedback.