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


  • Anenberg, Elliot


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.

Suggested Citation

  • Anenberg, Elliot, 2011. "Loss aversion, equity constraints and seller behavior in the real estate market," Regional Science and Urban Economics, Elsevier, vol. 41(1), pages 67-76, January.
  • Handle: RePEc:eee:regeco:v:41:y:2011:i:1:p:67-76

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    References listed on IDEAS

    1. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, vol. 87(3), pages 255-269, June.
    2. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    3. Robert J. Shiller, 1991. "Arithmetic Repeat Sales Price Estimators," Cowles Foundation Discussion Papers 971, Cowles Foundation for Research in Economics, Yale University.
    4. 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.
    5. Chen, Yongmin & Rosenthal, Robert W, 1996. "Asking Prices as Commitment Devices," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 129-155, February.
    6. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
    7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    8. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 379-406.
    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. 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.
    12. John Y. Campbell & Stefano Giglio & Parag Pathak, 2011. "Forced Sales and House Prices," American Economic Review, American Economic Association, vol. 101(5), pages 2108-2131, August.
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    Cited by:

    1. Elliot Anenberg & Patrick Bayer, 2013. "Endogenous sources of volatility in housing markets: the joint buyer-seller problem," Finance and Economics Discussion Series 2013-60, Board of Governors of the Federal Reserve System (U.S.).
    2. Allen Head & Hongfei Sun & Chenggang Zhou, 2016. "Default, Mortgage Standards and Housing Liquidity," Working Papers 1359, Queen's University, Department of Economics.
    3. repec:spr:jstada:v:4:y:2017:i:1:d:10.1186_s40488-017-0067-2 is not listed on IDEAS
    4. Christophe André & Nikolaos Antonakakis & Rangan Gupta & Mulatu F. Zerihun, 2017. "Asymmetric Behaviour in Nominal and Real Housing Prices: Evidence from Advanced and Emerging Economies," Working Papers 201711, University of Pretoria, Department of Economics.
    5. Arbel, Yuval & Ben-Shahar, Danny & Gabriel, Stuart, 2014. "Anchoring and housing choice: Results of a natural policy experiment," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 68-83.
    6. Bracke, Philippe & Tenreyro, Silvana, 2016. "History dependence in the housing market," Bank of England working papers 630, Bank of England.
    7. Bracke, Philippe & Tenreyro, Silvana, 2016. "History dependence in the housing market," LSE Research Online Documents on Economics 86176, London School of Economics and Political Science, LSE Library.
    8. Thomas A. Stephens & Jean-Robert Tyran, 2012. "“At least I didn’t lose money” - Nominal Loss Aversion Shapes Evaluations of Housing Transactions," Discussion Papers 12-14, University of Copenhagen. Department of Economics.
    9. Christophe Andre & Rangan Gupta & John W. Muteba Mwamba, 2016. "Are Housing Price Cycles Asymmetric? Evidence from the US States and Metropolitan Areas," Working Papers 201635, University of Pretoria, Department of Economics.
    10. repec:eee:jhouse:v:36:y:2017:i:c:p:8-24 is not listed on IDEAS
    11. J.W.A.M. Steegmans & W.H.J. Hassink, 2015. "Decreasing house prices and household mobility: An empirical study on loss aversion and negative equity," Working Papers 15-12, Utrecht School of Economics.
    12. repec:eee:regeco:v:68:y:2018:i:c:p:36-45 is not listed on IDEAS
    13. Coulson, N. Edward & Grieco, Paul L.E., 2013. "Mobility and mortgages: Evidence from the PSID," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 1-7.
    14. Damian S. Damianov & Diego Escobari, 2016. "Long-run Equilibrium Shift and Short-run Dynamics of U.S. Home Price Tiers During the Housing Bubble," The Journal of Real Estate Finance and Economics, Springer, vol. 53(1), pages 1-28, July.


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