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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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    5. 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.
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    JEL classification:

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

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