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 pu rchase of a new home. The model has direct implications for the volati lity of house prices, as well as for the correlation between prices an d trading volume. The model can also be extended to address the correl ation between prices and time-to-sale, as well as certain aspects of t he cyclical behavior of housing starts.