Abstract

We study pricing and liquidity in the market for new housing using rich project-level
and transaction-level data from Norway. We provide evidence that points to prices of new homes adjusting substantially more sluggishly than prices in the existing-home market. A central empirical fact is that the relative price growth of new versus existing homes comoves positively with inventory-to-sales ratios in the new-housing market. In the cross-section, we further show that higher initial prices are associated with longer selling durations, delayed project starts, and higher cancellation probabilities. We interpret these findings through a simple theoretical framework with imperfect substitutability between new and existing housing and rigid prices for new homes. The model is consistent with the observed joint dynamics of relative prices, sales, and inventories under housing-demand shocks, while alternative flexible-price mechanisms or other shocks cannot generate these comovements. Overall our findings suggest that price rigidities among developers amplify housing-demand shocks and may contribute to persistent fluctuations in residential investment and housing supply.