Every year during the second and third quarters (the “hot season”) housing markets in the U.K. and the U.S. experience systematic above-trend increases in both prices and transactions. During the fourth and first quarters (the “cold season”), housing prices and transactions fall below trend. A similar seasonal cycle is observed in other developed countries. We present a search-and-matching model that can quantitatively mimic the seasonal fluctuations in transactions and prices observed in the U.K. and the U.S. The model features “thick-market ” effects that can generate substantial differences in the volume of transactions and prices across seasons, with the extent of seasonality in prices depending positively on the bargaining power of sellers. As a by-product, the model sheds new light on the mechanisms governing fluctuations in housing markets and can be adapted to study lower-frequency movements in prices and transactions
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