BID-ASK SPREAD IN FINNISH HOUSING MARKETS

Abstract

The main objective of this study is to first of all answer the question of how the market participants in Finland have seen the pricing of housing from different perspective than previous studies by studying how much the asking price differs from the bidding price in the Finnish housing markets. Secondly this research departs from past studies concerning the Finnish housing market liquidity by examining reflect of spread between the listing and contract prices to market liquidity.

Housing market data comprises of the list prices and actual contract prices of dwellings in Helsinki Metropolitan area including Espoo and Vantaa and also cities of Turku, Tampere, Oulu, Jyväskylä, Joensuu and Vaasa are included. The observation period is from January 1, 2005 to December 31, 2012. The list prices of houses were gathered from one of the biggest open market database portals in Finland and the actual contract prices were collected from Statistics Finland database. The content of both databases are based on the information of housing transactions provided by real estate agents.

First this research results showed that housing market bid-ask spread was statistically significant across time in whole observation period in all studied market areas. There can thus be seen differences between different housing types. Overall the difference in list and transaction prices was – 10.3 percent and condominiums accounting -12.5 percent bid-ask spread. Second, in all market areas the liquidity was studied to affect to housing bid-ask spread. Correlation between dwelling time on the market and bid-ask spread was however slightly positive. Third, the Helsinki metropolitan area housing market was studied to capture more positive correlation between bid-ask spread and housing time on the market.