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Discussion Paper Details

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Title: Reference Dependence in the Housing Market

Author(s): Steffen Andersen, Cristian Badarinza, Lu Liu, Julie Marx and Tarun Ramadorai

Publication Date: November 2019

Keyword(s): down-payment constraints, Housing, loss aversion, Mortgages and reference dependence

Programme Area(s): Financial Economics

Abstract: We model listing decisions in the housing market, and structurally estimate household preference and constraint parameters using comprehensive Danish data. Sellers optimize expected utility from property sales, subject to down-payment constraints, and internalize the effect of their choices on final sale prices and time-on-the-market. The data exhibit variation in the listing price-gains relationship with "demand concavity;" bunching in the sales distribution; and a rising listing propensity with gains. A new fact is that gains and down-payment constraints have interactive effects on listing prices. We find reference-dependence around the nominal purchase price and modest loss-aversion, but our canonical model cannot fully explain the new facts.

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Bibliographic Reference

Andersen, S, Badarinza, C, Liu, L, Marx, J and Ramadorai, T. 2019. 'Reference Dependence in the Housing Market'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14147