Hot and Cold Markets

22 Pages Posted: 27 Apr 2009

See all articles by Robert Novy-Marx

Robert Novy-Marx

Simon Business School, University of Rochester; National Bureau of Economic Research (NBER)


This article considers why housing market conditions, including the ratio of buyers to sellers, expected time-to-sale and transaction prices are sensitive to fundamentals. These high sensitivities result from feedback: market participants optimally respond to shocks in a manner that amplifies a shock's initial impact, which in turn elicits further reinforcing responses. For example, a positive demand shock brings more buyers into a market. This improves the bargaining position of sellers, who then sell more quickly, decreasing the stock of sellers in the market. This further increases the relative number of buyers to sellers, amplifying the initial shock.

Suggested Citation

Novy-Marx, Robert, Hot and Cold Markets. Real Estate Economics, Vol. 37, No. 1, pp. 1-22, Spring 2009, Available at SSRN: or

Robert Novy-Marx (Contact Author)

Simon Business School, University of Rochester ( email )

Rochester, NY 14627
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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