In Los Angeles, all-cash home purchases quintupled during the last decade. Compared with an else-equal mortgage offer, a cash offer is associated with 29 percent shorter time-to-close and a 2–3.9 percent price discount, indicating a substantial amount of financing risk—the risk to a seller that a transaction may not close on time and may fail to occur again because a mortgage contingency fails. The estimated cash discount aligns well with a canonical model calibrated to the sample market. Our findings reveal that closing risk alone is insufficient to explain the cash discount. Rather, it turns on the possibility that a property back on the market may fail to sell, requiring a substantial risk compensation. The estimated cash discount is smaller during booms and in larger markets, highlighting the inseparability of financial frictions in the mortgage market and search frictions in the housing market.

We perform a comprehensive neighborhood-level analysis of housing supply. Predictions of floor space and housing unit supply elasticities using our estimates average 0.5 and 0.3 across all urban neighborhoods in the United States, exhibiting greater variation within than between metro regions. New construction accounts for about 50% of unit supply responses, with important additional roles for teardowns and renovations. Supply responses grow with central business district distance mostly from the increasing availability of undeveloped land, flatter land, and less regulation. Identification comes from variation in labor demand shocks to commuting destinations, as aggregated using insights from a quantitative spatial equilibrium model.