Housing Market Liquidity and the Effect on Unemployment in the United States: An Application to the U.S. Housing Market, Isolating Regional Housing Market Liquidity and the Associated Effect on Unemployment

This study proposes a measure of price spread between the bid (or the offer price from the buyer) and the ask (or the list price of the seller) in order to isolate the effect of housing market liquidity on unemployment. Housing market liquidity is defined as its impact on labor market equilibrium and unemployment at the state and regional levels. This proxy for housing market liquidity offers a more thorough measure of housing liquidity or market clearing ability compared with the current literature, which has relied on price or price changes alone as the primary measure of activity in the housing market. Price alone does not account for liquidity. Rather, the ratio between what a seller is asking and a buyer is willing to pay more clearly captures liquidity. The larger the price spread, the more illiquid the asset. This study provides facts consistent with the hypothesis that the housing market plays an essential role as a determinant of regional unemployment