Nominal loss aversion and equity constraints in house price determination: empirical evidence in the absence of down-payment constraints

Abstract

The paper investigates the effects of nominal loss aversion and equity constraints on house prices in a market without down-payment constraints or strategic defaults. Using extensive house transaction data of owneroccupied family homes from the Netherlands in combination with administrative microdata, the results show that the price effect of nominal loss aversion is about twice the size of the effect of negative equity. List price regressions provide evidence that higher transaction prices are obtained by setting higher list prices. Thereby the paper presents new evidence that nominal loss aversion and equity constraints lead to market premiums.