Are Home Buyers Myopic? Evidence From Capitalization of Energy Costs

This paper explores whether home buyers are myopic about future energy costs. I exploit variation in energy costs in the form of fuel price changes in Massachusetts where there is significant overlap in the geographic and age distributions of oil-heated homes and gas-heated homes. I find that relative fuel price shifts cause relative changes in housing transaction prices that are consistent with full capitalization of the present value of future energy cost differences under relatively low discount rates. These findings are similar across the income spectrum and are consistent with home buyers being attentive to energy costs and are not consistent with myopia.