CPR Working Paper Series No. 42
Nominal Loss Aversion, Housing Equity Constraints, and Household Mobility: Evidence from the United States
Gary Engelhardt
September 2001
Abstract: This paper exploits the significant recent
variation in United States house prices to empirically examine the
effect on housing equity constraints and nominal loss aversion on
household mobility. The analysis uses unique, detailed data from
1985-1996 on household characteristics, mobility, and wealth from
the National Longitudinal Survey of Youth (NLSY79) matched with
house price data from 149 metropolitan areas to estimate
semiparametric proportional hazard models of intra- and
intermetropolitan mobility. There are five principal findings.
First, household intrametropolitan own-to-own mobility responds
differently to nominal housing losses than to gains. Second, nominal
loss aversion is significantly less pronounced in intrametropolitan
own-to-rent and intermetropolitan mobility, respectively. Third,
there is some evidence of binding equity constraints in
intrametropolitan own-to-own mobility. Fourth, there is little
evidence that low equity constrains intrametropolitan own-to-rent
and intermetropolitan mobility, respectively. Fifth, a comparison of
the estimated effects indicates that nominal loss aversion has a
more dominant effect than equity constraints in restricting
household mobility, roughly two and one-half to three times the
impact of equity constraints.
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