This paper shows that uncertainty affects the housing market in two significant ways. First, uncertainty
shocks adversely affect housing prices but not the quantities that are traded. Controlling for a broad set
of variables in fixed-effects regressions, we find that uncertainty shocks reduce housing prices and median
sales prices in the amount of 1.4% and 1.8%, respectively, but the effect is not statistically significant
for the percentage changes of all homes sold. Second, when both uncertainty and local demand shocks
are introduced, the effects of uncertainty on the housing market dominate that of local labor demand
shocks on housing prices, median sell prices, the share of houses selling for loss, and transactions. The
aforementioned effects are largest for the states that exhibit relatively high housing price volatilities,
suggesting real options effects in the housing market during the times of high uncertainty.