TOM: Measuring Liquidity in the Swedish Real Estate Market : Investigation of the influence of the market conditions on the time-on-market and price relationship

Sammanfattning: This thesis project examines the liquidity of the residential market in Stockholm under different phases of the real estate cycle. Using time-on-market (TOM) as a liquidity indicator, the aim is to get an insight of the influence of prices, property characteristics and macroeconomic variables. The housing price index of residential apartments in Stockholm witnessed a significant fluctuation following the economic shock of the COVID-19 pandemic and the invasion of Ukraine. This unique situation provided an excellent opportunity to explore the relationship between TOM and prices, a topic that has been subject to recurrent research. Due to competing retail theory and the search theory, the TOM-price relationship is still debated between positive or negative. By dividing the sample data into quarters and market phases, this study demonstrates that the residential market in Stockholm has a negative TOM-price relationship in all market conditions. However, the magnitude of the effect of price over TOM varied depending on the market phase. The results suggest that sellers adopt a rational approach in which they are motivated to capitalize on the positive market conditions before the situation becomes unfavorable. Conversely, when the market is experiencing a decline, sellers choose to wait for a more favorable market environment. Further research could test a different empirical methodology to confirm this relationship and identify other factors that could be affecting the liquidity of the market.