Reference Dependence in the Housing Market

We model listing decisions in the housing market, and structurally estimate household preference and constraint parameters using comprehensive Danish data. In the model, reference-dependent and loss-averse sellers optimize expected utility from property sales, subject to down-payment constraints, and internalize how their choices affect final outcomes. In the data, listing prices vary asymmetrically with gains and losses since purchase; this relationship is modulated by regional demand nonlinearity; and final sales bunch at zero nominal gains. We find that the price-volume correlation in housing markets is primarily driven by households' reference dependence and down-payment constraints, and only modestly by loss aversion.