Determinants of Time on the Market in a Thin Real Estate Market
Keywords:Real Estate Market, Time on the Market, Overpricing, Proportional Hazard Model, Central and Eastern Europe, Slovenia, Thin Market.
In the paper we investigate the factors that affect a property’s time on the market (TOM) in the residential real estate market in the case of a thin, illiquid market, such as those found in Central and Eastern European (CEE) countries. In contrast to liquid markets, the time it takes to sell a property can vary from a few days to a few months. In Slovenia a residential property’s marketability depends strongly on the price dynamics of the market, housing characteristics and the degree of overpricing. The most important determinants of the marketing time are the cost and availability of housing finance as well as the housing price index, and all three can be directly related to the affordability of housing.
We develop a two-stage model of the determinants of TOM and a duration model. The results of the list price model show that as the age of property increases, its (list) price decreases with diminishing pace, while the size of the property has the opposite dynamic. The presence and size of parking lots also has a positive effect on the (list) price.
The results of the Time on the Market model show that property characteristics, market conditions and macroeconomic determinants are all statistically significant determinants of TOM. The degree of overpricing turned out to be a statistically significant determinant of time on the market. However, this effect does not seem to be statistically significantly non-linear (U-shaped). Higher house prices (at the national level) and the average interest rate on housing loans both extend a property’s time on the market while better availability of housing loans, in contrast, shortens the TOM. We additionally estimated a proportional hazard model of the TOM that yielded consistent results.