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Reference Dependence in the Housing Market

Author

Listed:
  • Andersen, Steffen
  • Badarinza, Cristian
  • Liu, Lu
  • Marx, Julie
  • Ramadorai, Tarun

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.

Suggested Citation

  • Andersen, Steffen & Badarinza, Cristian & Liu, Lu & Marx, Julie & Ramadorai, Tarun, 2019. "Reference Dependence in the Housing Market," CEPR Discussion Papers 14147, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:14147
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    References listed on IDEAS

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    More about this item

    Keywords

    down-payment constraints; Housing; loss aversion; Mortgages; reference dependence;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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