Today’s overheated housing market, as anyone shopping for a home in Rochester can attest, is characterized by scant inventory chased by a host of buyers. The result: bidding wars that send costs through the roof. Winners of those battles may taste a kind of victory; however, recent research shows they experience a “winner’s curse,” not only systematically overpaying for their new homes but suffering further losses in the future.
Soon Hyeok Choi, Ph.D., and several co-authors studied this phenomenon by analyzing 14 million home sales in 30 U.S. states over two decades. They found that people who paid more than the asking price for their homes – a reliable sign of a bidding war – saw annual returns when they sold that home that were about 1.3 percentage points lower than those who didn’t engage in such battles and were more likely to default on their mortgages. Troublingly, the authors found the winner’s curse is more pronounced among lower-income, Black and Hispanic homebuyers.
Choi’s coauthored paper on this topic, “The Winner’s Curse in Housing Markets,” has gained local and national attention:
- "The Dangers of Overbidding on a House" on Connections with Evan Dawson (WXXI, NPR)
- "Data in Context" in Cotality with Allie Barefoot (former CoreLogic)
- Fortune: "The real-estate ‘winner's curse': Study of nearly 14 million home sales over 20 years shows you don't want to win that bidding war"
- The Conversation: "Winning a bidding war isn't always a win, research on 14 million home sales shows"
As Choi writes in The Conversation, “This matters now because the housing market is cooling. Those who bought in the post-pandemic housing market and listed their homes in 2025 are already facing the risk of selling at a loss. Because this risk falls disproportionately on Black and Hispanic homebuyers, it could further widen the wealth gap.”
Soon Hyeok Choi is an assistant professor in the department of finance and accounting. He is a real estate and financial economist.
