Nominal Loss Aversion, Housing Equity Constraints, and Household Mobility: Evidence from the United States

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.

JEL Classification: R31