Reference Dependence in the Housing Market

Steffen Andersen, Cristian Badarinza, Lu Liu, Julie Marx, Tarun Ramadorai

Research output: Working paperResearch

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.
Original languageEnglish
Place of PublicationLondon
PublisherCentre for Economic Policy Research
Number of pages53
Publication statusPublished - Nov 2019
SeriesCentre for Economic Policy Research. Discussion Papers
NumberDP14147
ISSN0265-8003

Keywords

  • Housing
  • Mortgages
  • Loss aversion
  • Reference dependence
  • Down-payment constraints

Cite this

Andersen, S., Badarinza, C., Liu, L., Marx, J., & Ramadorai, T. (2019). Reference Dependence in the Housing Market. Centre for Economic Policy Research. Centre for Economic Policy Research. Discussion Papers, No. DP14147 https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14147#