Is the Behavior of Sellers with Expected Gains and Losses Relevant to Cycles in House Prices?

73 Pages Posted: 24 May 2019 Last revised: 10 Feb 2020

See all articles by Tingyu Zhou

Tingyu Zhou

Florida State University

John M. Clapp

University of Connecticut - Department of Finance

Ran Lu-Andrews

California Lutheran University, School of Management

Date Written: February 8, 2020

Abstract

We examine anchoring to the price paid at purchase during an important cycle, 2000-2017. We exploit differences between the actual house price index and one that corrects for loss and gain behavior. Results suggest that anchoring was associated with reductions in observed changes in house prices during the boom (2004-2006) as sellers with gains dominate with their price discounts, and with reduced price declines during the bust (2007-2012) when losses bargained for substantial premiums per dollar loss. This paper extends the anchoring literature which has focused on individual behavior, and it supports new stylized facts associated with housing market cycles.

Keywords: Housing Cycles, Anchoring, Reference Dependence, Price-volume Relationship, Cyclical Turning Points

JEL Classification: E00, G11, N2, R3

Suggested Citation

Zhou, Tingyu and Clapp, John M. and Lu-Andrews, Ran, Is the Behavior of Sellers with Expected Gains and Losses Relevant to Cycles in House Prices? (February 8, 2020). Available at SSRN: https://ssrn.com/abstract=3379083 or http://dx.doi.org/10.2139/ssrn.3379083

Tingyu Zhou (Contact Author)

Florida State University ( email )

821 Academic Way
Tallahassee, FL 32306
United States

John M. Clapp

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5057 (Phone)
860-486-0349 (Fax)

Ran Lu-Andrews

California Lutheran University, School of Management ( email )

60 W. Olsen Road
School of Management
Thousand Oaks, CA California 91360
United States

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