The Price Concessions of High- and Low-Priced Housing in a Period of Financial Crisis

Abstract

This study uses the data from the Taiwan housing market and three methods to estimate the liquidity of high- and low-priced housing markets. The first method in this study used quantile regressions to estimate the relationship between time on the market and final transaction price. The second method involved adding variables representing housing price characteristics to the quantile regression model to control the influence of other housing characteristics and estimate the relationship between time on the market and transaction price. Lastly, this study estimated the price concessions that individual sellers accept to realize an asset. All empirical results showed that lower housing prices imply higher liquidity costs in the final transaction, and the average rate of price concession for low-priced housing was greatest at approximately 7%. The results of this study demonstrate that in an emerging market with a significant divide between rich and poor, when a financial crisis occurs, the most vulnerable sellers of real estate are the poor. The government should pay particular attention to the liquidity of the low-priced housing market and provide adequate avenues of funding to low-income families, to prevent them from becoming the greatest losers in a period of financial crisis.

Keywords

• time on the market
• price concession
• liquidity
• hedonic price model
• quantile regression