Making the purchase price fully salient to consumers has been shown to affect demand and equilibrium prices in various markets. Using a setting where part of the home acquisition price is in the form of nonsalient debt, we show this can happen in housing—a market where a typical household makes its largest acquisition. A regulation that made the debt and the total price salient for homebuyers eliminated a large mispricing caused by consumers’ inattention to the debt before the regulation. An average homebuyer would lose about $13,300 by acquiring a dwelling with one-standard deviation ($51,000)-higher debt, but this is nearly eliminated after the regulation. To shed light on the underlying channels, we use administrative data and show that young, financially inexperienced, and first-time homebuyers used to overpay the most. The results are not driven by rational channels based on liquidity constraints and adverse selection. Our findings imply that making all-inclusive house price and mortgage features salient at the time of advertising the sale can help avoid unintentional borrowing.
AGARWAL, S. et KARAPETYAN, A. (2022). Information Salience and Mispricing in Housing. Management Science, 68(12), pp. 9082-9106.