Assessing evidence for inattention to the costs of homeownership

Abstract

Many goods and services have accompanying costs that are not salient at the moment of purchase. Existing research suggests that consumers are inattentive to such costs when making small purchases. There is less evidence about attention to costs associated with large purchases. This paper examines residential real estate transactions and studies the extent to which sale prices adjust to ownership costs. The results are inconclusive, neither ruling out full price adjustment nor lack of price adjustment. Despite the inconclusive result, the inability to decisively rule out incomplete price adjustment to predictable ownership costs (which is suggestive of inattention) is noteworthy, given the high financial stakes of buying a home.