The Market Thickness and the Impact of Unemployment on Housing Market Outcomes
A search-and-matching model is developed to study how unemployment influences the housing market in the presence of the thick-market effect. A structural estimation of the model is conducted based on Texas city-level data that covers three years—1990, 2000 and 2010. Simulations help clarify how much the thick-market effect amplifies the impact of unemployment. A three-percentage-point increase in the unemployment rate lowers the price by 10.74% and reduces the transaction volume by 5.49%. Incorporating a feedback mechanism from housing prices to unemployment strengthens the amplification magnitude of the thick-market effect.