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CEP discussion paper
History dependence in the housing market
Philippe Bracke and Silvana Tenreyro
August 2018
Paper No' CEPDP1568:
Full Paper (pdf)

JEL Classification: E30; R21; R31

Tags: housing market; fluctuations; down-payment effects; reference dependence; anchoring; loss aversion

Using data on the universe of housing transactions in England and Wales over a twenty-year period, we document a robust pattern of history dependence in housing markets. Sale prices and selling propensities are affected by house prices prevailing in the period in which properties were previously bought. We investigate the causes of history dependence complementing our analysis with administrative data on mortgages and online house listings, which we match to actual sales. We find that cognitive and financial frictions explain the history dependence in the data. Both contributed to the collapse and slow recovery of the volume of housing transactions in the post-crisis period.