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Money Illusion and Residential Real Estate Transfers

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Abstract

This paper reports the results of a study of single-family, detached home transfers, conducted to determine if rational expectations holds as a function of owner-tenure. A counter-rational expectations notion, which has intuitive appeal, is that sellers with relatively long owner-tenure may be more willing to accept "low" offers compared to sellers with short owner-tenure. The study supports this notion. Owner-tenure is found to be significantly related to the real profit realized by sellers. This implies that rational expectations does not hold as a function of owner-tenure and that owner-tenure is a relevant factor for buyers to consider in formulating a purchase offer.

Suggested Citation

  • James E. Larsen, 1989. "Money Illusion and Residential Real Estate Transfers," Journal of Real Estate Research, American Real Estate Society, vol. 4(1), pages 13-19.
  • Handle: RePEc:jre:issued:v:4:n:1:1989:p:13-19
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    References listed on IDEAS

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    1. Colwell, Peter F & Guntermann, Karl L & Sirmans, C F, 1979. "Discount Points and Housing Prices: Comment," Journal of Finance, American Finance Association, vol. 34(4), pages 1049-1054, September.
    2. Echols, Michael E & Elliott, Jan Walter, 1976. "Rational Expectations in a Disequilibrium Model of the Term Structure," American Economic Review, American Economic Association, vol. 66(1), pages 28-44, March.
    3. Jacob Belkin & Donald J. Hempel & Dennis W. McLeavey, 1976. "An Empirical Study of Time on Market Using Multidimensional Segmentation of Housing Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 4(2), pages 57-75.
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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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