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.