Price Adjustment and Liquidity in a Residential Real Estate Market with an Accelerated Information Cascade

By Salter, Sean P.; King, Ernest W. | The Journal of Real Estate Research, October-December 2009 | Go to article overview

Price Adjustment and Liquidity in a Residential Real Estate Market with an Accelerated Information Cascade


Salter, Sean P., King, Ernest W., The Journal of Real Estate Research


Abstract

We examine the effect of an unannounced information event, Hurricane Katrina, on the liquidity of the residential real estate market in an area proximately located to the Mississippi Gulf Coast. Using 2SLS and Weibull techniques applied to a unique MLS data set, we test changes in liquidity in a submarkets framework. Results suggest Katrina created submarket effects with respect to the listing and sales periods of our sample and market liquidity was directly influenced by this event. We suggest that this effect was tied to information flow as owners of heavily damaged properties sought new housing in a nearby area.

On August 29, 2005, Hurricane Katrina made landfall near Biloxi, Mississippi. As has been well-documented, Katrina proved to be the costliest Atlantic hurricane in the history of the United States, causing total damages in excess of an estimated $80 billion (USD). The world watched as television crews captured photographic evidence of this deadly natural disaster, which not only damaged property but also contributed to at least 1,599 deaths (estimated), making it the deadliest natural disaster since the San Francisco Earthquake of 1906.1

One of the most obvious effects to those living in the affected areas was the immediate shock to the populations of the distressed region. The New Orleans, Louisiana, MSA, with an estimated population of 1.3 million people before the disaster, was almost abandoned after the Lake Pontchartrain levees failed and the city flooded. Likewise, the Mississippi Gulf Coast Region (Jackson, Hancock, and Harrison Counties) sustained an incredible amount of damage that was directly related to the tidal surge and hurricane-force winds that assaulted that area. Infrastructure, businesses, and residential areas were destroyed or severely damaged, leaving inhabitants to seek alternative living space in a temporary, semipermanent, or permanent manner.

Hurricane Katrina provides a unique case study to examine the effect of an unexpected event on residential real estate market dynamics. Prior to Katrina's landfall, no one could pinpoint the area that would be affected nor could they accurately estimate the scope of the effect Katrina would have on an entire region. This combination of factors makes Hurricane Katrina an extremely interesting information event. How did Hurricane Katrina affect areas on the periphery of the extreme devastation? The Hattiesburg, Mississippi, MSA received quite a bit of damage, but basic services were generally restored within two weeks of Katrina's landfall. Individuals who fled their destroyed or severely damaged properties on the Mississippi Gulf Coast or in Louisiana were able to relocate to the Hattiesburg area, where they could evaluate their individual situations while remaining in relatively close proximity to their domiciles.

We present this post-Katrina real estate market in the context of the theoretical model developed in Forgey, Rutherford, and Springer (1996), which models liquidity in a residential real estate setting. We construct both hedonic pricing and time-on-market models to test the impact of Hurricane Katrina on selling prices and marketing times of residential properties in the Hattiesburg, Mississippi, MSA. Our empirical tests align with theory, and our a priori expectation, which is driven by our theoretical application, is that market mechanisms will alter property prices and marketing times (and therefore liquidity) based on the effect of Hurricane Katrina.

The following section reviews the pertinent literature and presents the theoretical motivation for our study. Section Three introduces the data used to test our empirical models, and Section Four discusses the methodology for our modeling efforts and the results of our statistical models. Section Five concludes.

Literature

Residential Real Estate and Market Efficiency

The residential real estate brokerage literature is rife with studies focused on the effect of property characteristics, revealed information, marketing strategies, and other factors on property price. …

The rest of this article is only available to active members of Questia

Upgrade your membership to receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad‑free environment

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Upgrade your membership to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Price Adjustment and Liquidity in a Residential Real Estate Market with an Accelerated Information Cascade
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved in your active project from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Upgrade your membership to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.