Loss aversion in New Zealand housing

Ryan Greenaway-McGrevy and Cameron Haworth

New Zealand Economic Papers, 2020, vol. 54, issue 2, 138-160

Abstract: We examine whether New Zealand home sellers are loss averse. Our empirical method is based on a large dataset of residential real estate transactions that exploits the most recent substantive housing downturn of 2007–2009. Consistent with loss aversion, we find that houses predicted to sell at a nominal loss realised a premium compared to houses predicted to sell at a nominal gain. We show how this finding causes house price indices to be ‘downward sticky’, preventing house price indices from falling by an additional two and a half percentage points during the downturn.

Date: 2020
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DOI: 10.1080/00779954.2019.1631877

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