Reference Dependence in the Housing Market
145 Pages Posted: 14 Jun 2019 Last revised: 27 Jan 2021
Date Written: January 26, 2021
We model listing decisions in the housing market, and structurally estimate household preference and constraint parameters using comprehensive Danish data. In the model, reference-dependent and loss-averse sellers optimize expected utility from property sales, subject to down-payment constraints, and internalize how their choices affect final outcomes. In the data, listing prices vary asymmetrically with gains and losses since purchase; this relationship is modulated by regional demand nonlinearity; and final sales bunch at zero nominal gains. We find that the price-volume correlation in housing markets is primarily driven by households' reference dependence and down-payment constraints, and only modestly by loss aversion.
Keywords: housing, mortgages, loss aversion, reference dependence, down-payment constraints
JEL Classification: D03, D12, D14, G02, G50, R21
Suggested Citation: Suggested Citation