Liquidity in housing markets: the effect of news sentiment on time on market

Purpose In this paper, we investigate whether news sentiment directly affects housing market liquidity using housing transactions data and newspaper articles on housing topics. Design/methodology/approach We develop a conceptual model for the relationship between news sentiment and liquidity and test it empirically. We examine both the long- and short-run relationship between news sentiment and time on market (TOM) for condominiums in the Finnish Helsinki Metropolitan Area housing market, using a combination of cross-sectional and time-series estimation techniques. Findings Using fully modified ordinary least squares (FMOLS) and an error correction model, we find that TOM significantly increases in the long run with positive news sentiment but decreases in the short run. The difference in effects stems from how market participant expectations and behavior interact with fundamental factors such as income and credit availability. Research limitations/implications Our study covers a limited horizon in which news tone is mostly positive. Results should be interpreted as responses to changes around a generally positive baseline rather than as a symmetric response to strongly negative or positive news. Originality/value To the best of the authors’ knowledge, this research is the first to study the impact of news sentiment on housing market liquidity, as well as the differences between its long- and short-run effects. Our novel results add to the extant literature on housing market sentiment and aggregate housing market liquidity determinants.