List price and sale price variation across the housing market cycle

The purpose of this paper is to explore how the difference between the sale price and list price of houses varies across the market cycle.

The paper utilises quarterly transaction‐based information on house prices from the Belfast Metropolitan Area. The information is structured on a time series basis from 2002 to 2008. The analysis is concerned with the mean differences between list price and sale price, the standard deviation of the differences, the skewness and kurtosis of the distributions.

The results show that under normal market conditions the mean deviation between list price and sale price is small circa 1 per cent. However, the departure between list price and sale price becomes substantial on both the up‐ and down‐cycles of the market. The analysis shows that the highest mean positive deviation of 12.1 per cent occurred in the first quarter of 2007 and two quarters before sale prices peaked, suggesting that buyer bidding behaviour was changing prior to the market peak. The extent of market change is highlighted by the mean negative deviation of 8.6 per cent for the fourth quarter of 2008. The results demonstrate that volatility increases over the cycle and distributions of price differences are lower and flatter.

This paper breaks new ground through the analysis of differences between list and sale price in a period of high volatility in the housing market. The analysis shows how list price lags sale price on the up‐cycle but leads on the down‐cycle.