In this paper, we analyse one slice of the 2008 economic crisis in the Hungarian residential real estate market. We show that less frequent oers can qualitatively explain some of the observed phenomena. The decreasing volume of transactions and the fall in transaction prices are explained in an optimal stopping framework, where less frequent oers force sellers to decrease their reservation price. Our empirical data reveals the connection between settlement size and transaction volumes.

more »

... s adjustment in transaction volumes is dierent in smaller settlements than in larger ones: there appears to be a smaller relative decrease in transaction volumes in smaller settlements. The unexpected negative relationship between size and the change in volume is robust to the inclusion of controls (eg. for NUTS 2 region, or the distance from the nearest larger town). A possible explanation is the following. The fact that transaction volumes fall after a crisis means that sellers will receive fewer oers over a given space of time. In smaller settlements, oers are generally less frequent than in larger settlements. Therefore, in a post-crisis smaller settlement, if an oer does come along, sellers will be likely to accept it even if it is lowsince they anticipate that this oer will be the only one they receive for some time. Sellers in larger settlements, however, may still nd it worth their while to hold out and wait for a better oer. This means that while post-crisis adjustment in smaller settlements happens less in volume than in price, the converse is true of larger settlements. The above argument ts into an optimal stopping framework, in which sellers receive diering oers at various intervals (each oer only being available for a limited amount of time), and must decide which oer to accept. We therefore address our puzzle using an optimal stopping model. * Preliminary version, please do not quote without authors' consent.