The Market Demand Characteristics Associated with Real Estate Services: Some Evidence from a Panel Data Set of MSAs

Abstract

No study to date has empirically explored the characteristics associated with the market demand for real estate services. This study uses microeconomic theory and a panel data set of metropolitan statistical areas (MSAs) in the United States to uncover elasticity estimates of the market demand for real estate with respect to own price, income, business cycle fluctuations, and other variables. The empirical findings yield a number of important insights regarding the market demand characteristics associates with real estate services. First, own-price elasticity equals roughly -1.20, suggesting an elastic demand for real estate services exists at the market level. Second, the income elasticity is found to be approximately 0.40, indicating that real estate services represent a normal good. Third, business cycle fluctuations, as represented by changes in the unemployment rate, are shown to influence the real estate services market but not to a significant extent. Finally, crime rates are shown to have no independent impact on the demand for real estate services despite earlier studies finding that crime reduces housing values and sales.

Keywords: Demand for real estate services; Price and income elasticities of demand for real estate services; Effect of unemployment on the real estate economy; Crime and the real estate economy