Abstract
Informational imperfections in the housing market imply that the adjustment of house price expectations following a shock to demand is likely to be slow. There may also be asymmetries in buyers’ and sellers’ responses such that the market is likely to exhibit some quantity adjustment. In a search theoretic model where buyers are assumed to respond prior to sellers, sales are expected to respond prior to prices. Empirically, this is suppported by the impulse–response functions calculated from a VAR model of the after-tax mortgage rate, house prices and sales