IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/103079.html
   My bibliography  Save this paper

History dependence in the housing market

Author

Listed:
  • Bracke, Philippe
  • Tenreyro, Silvana

Abstract

Using data on the universe of housing transactions in England and Wales over a 20-year period, we document that sale prices and selling propensities are affected by house prices prevailing in the period in which properties were previously bought. Using administrative data on mortgages, we show that cognitive frictions explain most of the history dependence in sale prices, whereas credit frictions are more relevant for selling propensities. We corroborate our analysis with data on online house listings, and we estimate the impact of history dependence on the collapse and slow recovery of housing market activity in the postcrisis period. (JEL E32, R21, R31)

Suggested Citation

  • Bracke, Philippe & Tenreyro, Silvana, 2021. "History dependence in the housing market," LSE Research Online Documents on Economics 103079, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:103079
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/103079/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, vol. 17(2), pages 303-316, April.
    2. Alan Beggs & Kathryn Graddy, 2009. "Anchoring Effects: Evidence from Art Auctions," American Economic Review, American Economic Association, vol. 99(3), pages 1027-1039, June.
    3. Darren Grant, 2003. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from the National Longitudinal Surveys," ILR Review, Cornell University, ILR School, vol. 56(3), pages 393-408, April.
    4. Paul J. Devereux & Robert A. Hart, 2007. "The Spot Market Matters: Evidence On Implicit Contracts From Britain," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(5), pages 661-683, November.
    5. L. Rachel Ngai & Silvana Tenreyro, 2014. "Hot and Cold Seasons in the Housing Market," American Economic Review, American Economic Association, vol. 104(12), pages 3991-4026, December.
    6. Stefano Giglio & Matteo Maggiori & Johannes Stroebel, 2014. "Very long-run discount rates," Globalization Institute Working Papers 182, Federal Reserve Bank of Dallas.
    7. Christian A. L. Hilber & Wouter Vermeulen, 2016. "The Impact of Supply Constraints on House Prices in England," Economic Journal, Royal Economic Society, vol. 126(591), pages 358-405, March.
    8. repec:bla:jfinan:v:53:y:1998:i:5:p:1775-1798 is not listed on IDEAS
    9. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2012. "Housing busts and household mobility: an update," Economic Policy Review, Federal Reserve Bank of New York, vol. 18(Nov), pages 1-15.
    10. François Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 459-485.
    11. Stefano Giglio & Matteo Maggiori & Johannes Stroebel, 2016. "No‐Bubble Condition: Model‐Free Tests in Housing Markets," Econometrica, Econometric Society, vol. 84, pages 1047-1091, May.
    12. Barberis, Nicholas & Xiong, Wei, 2012. "Realization utility," Journal of Financial Economics, Elsevier, vol. 104(2), pages 251-271.
    13. Choi, Hyun-Soo & Hong, Harrison & Scheinkman, Jose, 2014. "Speculating on home improvements," Journal of Financial Economics, Elsevier, vol. 111(3), pages 609-624.
    14. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 379-406.
    15. Philip Oreopoulos & Till von Wachter & Andrew Heisz, 2012. "The Short- and Long-Term Career Effects of Graduating in a Recession," American Economic Journal: Applied Economics, American Economic Association, vol. 4(1), pages 1-29, January.
    16. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
    17. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-688, August.
    18. Philippe Bracke & Edward W. Pinchbeck & James Wyatt, 2018. "The Time Value of Housing: Historical Evidence on Discount Rates," Economic Journal, Royal Economic Society, vol. 128(613), pages 1820-1843, August.
    19. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1233-1260.
    20. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
    21. Anenberg, Elliot, 2011. "Loss aversion, equity constraints and seller behavior in the real estate market," Regional Science and Urban Economics, Elsevier, vol. 41(1), pages 67-76, January.
    22. James Ted McDonald & Christopher Worswick, 1999. "Wages, Implicit Contracts, and the Business Cycle: Evidence from Canadian Micro Data," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 884-913, August.
    23. Engelhardt, Gary V., 2003. "Nominal loss aversion, housing equity constraints, and household mobility: evidence from the United States," Journal of Urban Economics, Elsevier, vol. 53(1), pages 171-195, January.
    24. Best, Michael Carlos & Cloyne, James & Ilzetzki, Ethan & Kleven, Henrik Jacobsen, 2015. "Interest rates, debt and intertemporal allocation: evidence from notched mortgage contracts in the United Kingdom," Bank of England working papers 543, Bank of England.
    25. Bunn, Philip & Rostom, May, 2015. "Household debt and spending in the United Kingdom," Bank of England working papers 554, Bank of England.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chakraborty, Chiranjit & Joseph, Andreas, 2017. "Machine learning at central banks," Bank of England working papers 674, Bank of England.
    2. Greenaway-McGrevy, Ryan & Sorensen, Kade, 2021. "A Time-Varying Hedonic Approach to quantifying the effects of loss aversion on house prices," Economic Modelling, Elsevier, vol. 99(C).
    3. Garbarino, Nicola & Guin, Benjamin & Lee, Jonathan, 2022. "The Effects of Subsidized Flood Insurance on Real Estate Markets," Bank of England working papers 995, Bank of England.
    4. Lamorgese, Andrea R. & Pellegrino, Dario, 2022. "Loss aversion in housing appraisal: Evidence from Italian homeowners," Journal of Housing Economics, Elsevier, vol. 56(C).
    5. Badarinza, Cristian & Ramadorai, Tarun & Siljander, Juhana & Tripathy, Jagdish, 2024. "Behavioral Lock-In: Aggregate Implications of Reference Dependence in the Housing Market," CEPR Discussion Papers 19123, C.E.P.R. Discussion Papers.
    6. Ross, Stephen L. & Zhou, Tingyu, 2024. "Loss aversion and focal point bias: Empirical evidence from housing markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    7. Giacoletti, Marco & Parsons, Christopher A., 2022. "Peak-Bust rental spreads," Journal of Financial Economics, Elsevier, vol. 143(1), pages 504-526.
    8. Coen, Jamie & Kashyap, Anil & Rostom, May, 2021. "Price discrimination and mortgage choice," Bank of England working papers 926, Bank of England.
    9. Ling Li & Wayne Xinwei Wan, 2024. "The Effect of Expected Losses on the Hong Kong Property Market," The Journal of Real Estate Finance and Economics, Springer, vol. 68(4), pages 654-683, May.
    10. Edika Quispe-Torreblanca & David Hume & John Gathergood & George Loewenstein & Neil Stewart, 2023. "At the Top of the Mind: Peak Prices and the Disposition Effect," Discussion Papers 2023-09, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    11. Jordan Rappaport, 2023. "Home Prices Are Overvalued but Will Decline Only Gradually," Economic Bulletin, Federal Reserve Bank of Kansas City, issue February , pages 1-4, February.
    12. Zhou, Tingyu & Clapp, John M & Lu-Andrews, Ran, 2021. "Is the behavior of sellers with expected gains and losses relevant to cycles in house prices?," Journal of Housing Economics, Elsevier, vol. 52(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Elliot Anenberg & Patrick Bayer, 2020. "Endogenous Sources Of Volatility In Housing Markets: The Joint Buyer–Seller Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1195-1228, August.
    2. Zhou, Tingyu & Clapp, John M & Lu-Andrews, Ran, 2021. "Is the behavior of sellers with expected gains and losses relevant to cycles in house prices?," Journal of Housing Economics, Elsevier, vol. 52(C).
    3. Meng, Charlotte C., 2023. "The price paid: Heuristic thinking and biased reference points in the housing market," Journal of Urban Economics, Elsevier, vol. 134(C).
    4. Lamorgese, Andrea R. & Pellegrino, Dario, 2022. "Loss aversion in housing appraisal: Evidence from Italian homeowners," Journal of Housing Economics, Elsevier, vol. 56(C).
    5. Andrea Lamorgese & Dario Pellegrino, 2019. "Loss aversion in housing price appraisals among Italian homeowners," Temi di discussione (Economic working papers) 1248, Bank of Italy, Economic Research and International Relations Area.
    6. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 753-811, Elsevier.
    7. Damianov, Damian S & Escobari, Diego, 2015. "Long-Run Equilibrium Shift and Short-Run Dynamics of U.S. Home Price Tiers during the Housing Bubble," MPRA Paper 65765, University Library of Munich, Germany.
    8. Steffen Andersen & Cristian Badarinza & Lu Liu & Julie Marx & Tarun Ramadorai, 2022. "Reference Dependence in the Housing Market," American Economic Review, American Economic Association, vol. 112(10), pages 3398-3440, October.
    9. Gan, Li & Wang, Pengfei & Zhang, Qinghua, 2018. "Market thickness and the impact of unemployment on housing market outcomes," Journal of Monetary Economics, Elsevier, vol. 98(C), pages 27-49.
    10. Lu Han & Chandler Lutz & Benjamin Sand & Derek Stacey, 2018. "Do Financial Constraints Cool a Housing Boom?," Working Papers 073, Toronto Metropolitan University, Department of Economics.
    11. Hans R.A. Koster & Edward W. Pinchbeck, 2022. "How Do Households Value the Future? Evidence from Property Taxes," American Economic Journal: Economic Policy, American Economic Association, vol. 14(1), pages 207-239, February.
    12. J.W.A.M. Steegmans & W.H.J. Hassink, 2015. "Decreasing house prices and household mobility: An empirical study on loss aversion and negative equity," Working Papers 15-12, Utrecht School of Economics.
    13. Brown, Jennifer & Matsa, David A., 2020. "Locked in by leverage: Job search during the housing crisis," Journal of Financial Economics, Elsevier, vol. 136(3), pages 623-648.
    14. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 987-1045, Elsevier.
    15. Miki Seko & Kazuto Sumita & Michio Naoi, 2012. "Residential Mobility Decisions in Japan: Effects of Housing Equity Constraints and Income Shocks under the Recourse Loan System," The Journal of Real Estate Finance and Economics, Springer, vol. 45(1), pages 63-87, June.
    16. Glaeser, Edward L. & Nathanson, Charles G., 2015. "Housing Bubbles," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 701-751, Elsevier.
    17. Edward L. Glaeser & Charles G. Nathanson, 2014. "Housing Bubbles," NBER Working Papers 20426, National Bureau of Economic Research, Inc.
    18. Carin van der Cruijsen & David-Jan Jansen & Maarten van Rooij, 2014. "The rose-colored glasses of homeowners," DNB Working Papers 421, Netherlands Central Bank, Research Department.
    19. Coulson, N. Edward & Grieco, Paul L.E., 2013. "Mobility and mortgages: Evidence from the PSID," Regional Science and Urban Economics, Elsevier, vol. 43(1), pages 1-7.
    20. Tingyu Zhou & John M Clapp & Ran Lu‐Andrews, 2022. "Examining omitted variable bias in anchoring premium estimates: Evidence based on assessed value," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 50(3), pages 789-828, September.

    More about this item

    Keywords

    housing market; fluctuations; down-payment effects; reference dependence; anchoring; loss aversion;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:103079. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.