Loss aversion in housing price appraisals among Italian homeowners

Andrea Lamorgese () and Dario Pellegrino

No 1248, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Several stylized facts, such as the correlation between house prices and sales volumes, suggest the existence of downward price rigidity in real estate markets. In this paper we explore a potential explanation for this behaviour by testing whether initial purchase prices and homeownersï¿½ appraisals of their dwellings show reference dependence. Using data from a sample of Italian households, we test whether - conditional on both observable and unobservable characteristics - homeowners appraise the value of their main dwelling differently depending on the price at which they purchased it. We find that 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 demographic groups in our sample.

Keywords: loss aversion; prospect theory; housing market (search for similar items in EconPapers)
JEL-codes: L10 R21 R31 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-eur, nep-upt and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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