DP14147 Reference Dependence in the Housing Market
|Author(s):||Steffen Andersen, Cristian Badarinza, Lu Liu, Julie Marx, Tarun Ramadorai|
|Publication Date:||November 2019|
|Keyword(s):||down-payment constraints, Housing, loss aversion, Mortgages, reference dependence|
|JEL(s):||D03, D12, D14, G02, R21|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=14147|
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.