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Loss aversion, equity constraints and seller behavior in the real estate market

  • Anenberg, Elliot
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    I develop an estimation strategy that can point identify the effects of loss aversion and equity constraints on selling prices using a long panel of data from the San Francisco Bay Area real estate market. I find strong evidence that owners facing nominal losses on their housing investments and owners with high LTV ratios sell for higher prices, on average, and the effects are larger than previously thought. I also present new empirical findings that support the theory that down-payment constraints or other institutional details of the mortgage market drive the relationship between LTV and prices. The results have implications for understanding how local housing market variables such as prices and volume are determined in slow markets.

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    File URL: http://www.sciencedirect.com/science/article/B6V89-5100HHW-1/2/52a107403536829c5929a0554001192f
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    Article provided by Elsevier in its journal Regional Science and Urban Economics.

    Volume (Year): 41 (2011)
    Issue (Month): 1 (January)
    Pages: 67-76

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    Handle: RePEc:eee:regeco:v:41:y:2011:i:1:p:67-76
    Contact details of provider: Web page: http://www.elsevier.com/locate/regec

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    1. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-31, August.
    2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    3. Robert J. Shiller, 1991. "Arithmetic Repeat Sales Price Estimators," Cowles Foundation Discussion Papers 971, Cowles Foundation for Research in Economics, Yale University.
    4. Jeremy C. Stein, 1993. "Prices and Trading Volume in the Housing Market: A Model with Downpayment Effects," NBER Working Papers 4373, National Bureau of Economic Research, Inc.
    5. David Genesove & Christopher J. Mayer, 1993. "Equity and time to sale in the real estate market," Working Papers 93-6, Federal Reserve Bank of Boston.
    6. Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers 2813, C.E.P.R. Discussion Papers.
    7. Yongmin Chen & Robert W. Rosenthal, 1993. "Asking Prices as Commitment Devices," Papers 0042, Boston University - Industry Studies Programme.
    8. Engelhardt, Gary V., 2003. "Nominal loss aversion, housing equity constraints, and household mobility: evidence from the United States," Journal of Urban Economics, Elsevier, vol. 53(1), pages 171-195, January.
    9. A. Yatchew, 2000. "Scale economies in electricity distribution: a semiparametric analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(2), pages 187-210.
    10. Michel Glower & Donald R. Haurin & Patric H. Hendershott, 1998. "Selling Time and Selling Price: The Influence of Seller Motivation," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(4), pages 719-740.
    11. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
    12. Michael A. Arnold, 1999. "Search, Bargaining and Optimal Asking Prices," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(3), pages 453-481.
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