Descriptive evidence suggests the presence of downward price rigidity in the housing market. This paper empirically tests one possible explanation, namely if homeowners' appraisals of the current value of their dwelling depends on the price paid to purchase it.
Results show an asymmetric reaction of the homeowner's appraisal: homeowners expecting a loss do not adjust their appraisals significantly in response to downward market conditions while, for those expecting a gain, the appraisals are independent of the price at which they bought the home. While loss aversion is mildly higher among poorer and less educated households, we find strong evidence of it across all the demographic groups in our sample.
Published in: Journal of Housing Economics, v. 56, Article 101826
