Decreasing House Prices and Household Mobility: An Empirical Study on Loss Aversion and Negative Equity

24 Pages Posted: 6 Jun 2018

See all articles by Joep Steegmans

Joep Steegmans

Utrecht University - School of Economics

Wolter Hassink

Utrecht University

Date Written: June 2018

Abstract

This paper examines the effects of loss aversion and negative equity on household mobility. We stress the importance of studying these mechanisms simultaneously. By making use of a unique administrative data set of Statistics Netherlands, covering the period 2006–2011, we estimate the effects of loss aversion and negative equity. The results provide strong evidence for loss aversion, while less evidence is found for a lock‐in effect of negative equity. The results indicate that moderately underwater households do have a lower mobility, but heavily underwater households do not. Additional results indicate that the particularly high mobility of heavily underwater households is not default‐driven.

Keywords: household mobility, housing market, loss aversion, negative equity

Suggested Citation

Steegmans, Joep and Hassink, Wolter, Decreasing House Prices and Household Mobility: An Empirical Study on Loss Aversion and Negative Equity (June 2018). Journal of Regional Science, Vol. 58, Issue 3, pp. 611-634, 2018, Available at SSRN: https://ssrn.com/abstract=3191604 or http://dx.doi.org/10.1111/jors.12380

Joep Steegmans (Contact Author)

Utrecht University - School of Economics

Wolter Hassink

Utrecht University ( email )

Vredenburg 138
Utrecht, 3511 BG
Netherlands

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