Is the behavior of sellers with expected gains and losses relevant to cycles in house prices?

Zhou, Tingyu; Clapp, John M.; Lu‐Andrews, Ran

doi:10.1016/j.jhe.2021.101750

Cited by 6 publications

(17 citation statements)

References 28 publications

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“…As a reflection of bargaining between sellers and buyers, the negotiated premiums on expected losses should vary with the boombust property cycle. As expected, BG and Zhou et al (2021) documented significant cyclicality in the effects of expected losses on transaction prices.…”

Section: Introductionsupporting

confidence: 74%

“…That is, the loss effect is associated with reduced price declines in the market trough, particularly in the commercial property market. While existing studies, such as Glaeser and Nathanson (2017) and Bracke and Tenreyro (2021), suggested that anchoring to past transaction prices is associated with excess volatility in the property market, our evidence joins Zhou et al (2021) to support the opposite.…”

Section: Introductionsupporting

confidence: 41%

“…Other established explanations to account for changes in transaction prices as a result of expected losses include equity constraints which are binding when the resale price is lower than the buying price (Stein, 1995;Genesove & Mayer, 1997;Anderson et al, 2021) and buyers' informational constraints (Anenberg, 2016;Ben-David & Hirshleifer, 2012). Recent studies like Bracke and Tenreyro (2021) and Zhou et al (2021) generalized the influence of expected losses by focusing on the anchoring behavior, that is, anchoring to the price paid for the asset. They argued that the effect of expected losses on transaction prices is likely a result of insufficient adjustments due to multiple forces such as psychological loss aversion and/or informational and financial constraints.…”

Section: Introductionmentioning

confidence: 99%

“…In this study, we follow the strategy of Zhou et al (2021) to investigate the pricing effect of expected losses by using the influential empirical model developed by GM, while we extend the literature by considering the role of two market factors in adjusting the loss effect. First, we consider the role of market information.…”

Section: Introductionmentioning

confidence: 99%

“…Lastly, we establish the relevance of the seller loss behavior to the market cycle at the aggregate market levels. We mainly follow the approach of Zhou et al (2021) to investigate the effect of expected losses on the aggregate property price indices and several distinct findings were presented. The aggregate loss effect is revealed to be stronger in the retail and office sectors than in the residential sector, and larger in the bust period than in the boom period.…”

Section: Introductionmentioning

confidence: 99%

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The Effect of Expected Losses on the Hong Kong Property Market

Ling

Wan

2021

J Real Estate Finan Econ

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Expected losses anchored to purchase prices can affect actual transactions in different property sectors. Utilizing the data of over a million commercial and residential property transactions in Hong Kong from 1991 to 2015, we find that sellers facing nominal losses relative to their prior purchase prices attained higher selling prices than their counterparts. We suggest two market factors to account for the extent of the loss effect on the market transaction prices. First, the loss effect is only prominent when comparable transaction information is not readily accessible, such as in the less-transacted commercial property market. Second, our results suggest the relevance of the loss effect to the boom-bust property cycle in both the residential and commercial markets. The effect of expected losses on transaction prices is relatively weak in the bust period between 1998 and 2003 when the Hong Kong property market lost almost two-thirds of its value, and it enlarges with the market recovering. The loss effect is not attenuated at the aggregate market level but is associated with strong reductions in price declines in the bust period and in the commercial market. These results have implications for understanding the market adjustment of the loss effect in the property market and its association with the aggregate market dynamics in a boom-bust property cycle.

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Section: Introductionsupporting

confidence: 74%