Abstract

We exploit an unexpected, geographically confined, and persistent increase in residential electricity prices to test whether real estate prices adjust quickly to their new fundamental value or whether they are downward sticky. We find that home prices in treated areas fall by 4.0% to 6.7% following the shock compared to controls, while transactions volume declines by 5.7% to 10.0%. The volume decline is driven by fewer listings, longer time-on-market, and increased unsold inventory—patterns inconsistent with frictionless price adjustment. Examining heterogeneous treatment effects, we show that homeowners with predicted negative equity or nominal losses are significantly less likely to sell and more reluctant to reduce prices relative to those with predicted positive equity or nominal gains. Our findings provide causal evidence of downward price stickiness, with implications for macroeconomic models and household mobility.

For further information please contact: giovanna.tramontano@unibocconi.it