Information asymmetry and anchoring in the housing market: a stochastic frontier approach

The housing market is thin. Buyers search and bargain in local housing markets, often paying different prices for nearly identical houses. Non-local homebuyers may have less information about the local housing market and may need to pay a higher search cost. Non-locals may also be anchored by housing prices in their original residential areas. Furthermore, homebuyers with different demographic characteristics, such as income, age, education, and occupation, may have different abilities and/or willingness to search and bargain for a good deal. Using a dataset from an emerging Chinese city, Tianjin, this study examines the impact of homebuyers' heterogeneity on housing prices. The results show that non-locals pay more than locals and that an anchoring effect exists for non-locals from places with higher housing prices. We also find that buyers who are older and less educated, or who have a lower income or a lower rank in occupation, are likely to pay less. These findings have important policy implications.