Bidding wars in the housing market: When directed search becomes stock-flow matching

This paper considers equilibrium trade in a real estate market. When search is directed, buyers have private independent values, and sellers compete on asking prices, stock-flow matching characterises equilibrium outcomes. Consistent with the data, equilibrium not only generates large and variable price spikes for new listing sales; unsuccessful sellers lower their asking prices over time; and there is equilibrium asking price dispersion. Bidding war data demonstrate that the match surplus is substantial: a lower bound equals 3.3% of house price, whereas ballpark examples suggest match surplus is around 10%.