Is it illegal to sell a house that you know is haunted without telling the buyer?

That is called a "stigmatized property" and could be a problem in some states.

No. If you tell buyers that the house is haunted, they will assume you are nutcases.

On the other hand, if your house is a beacon for flying saucers, you have to notify them of that.

Your cousin is mistaken, the only things you have to disclose are if someone died, it was used for making meth, or their are mechanical or structural defects or hazardous conditions (like asbestos) and the ages of things like the hvac and roof. Ghosts are not an accepted belief by all people

You have to disclose things that are factual, such as a leaking roof, next door have loud parties every weekend.......... you do not disclose your belief system... so buyers don't need to know what your religion is, how you vote in an election or if you think there are ghosts in the house

There is no such thing as ghosts or haunted houses. Therefore it is not illegal to sell your house.

Alleged paranormal activity must be disclosed. Look it up, folks.

Absolutely you have to disclose it. Anything that might make the house undesirable or difficult to resell that you know of has to be disclosed under law. You don't have to say "It's haunted", but you have to disclose that you see "odd things happen at night".

since ghosts don't exist in the law what would they sue you for?

That would be some case - trying to prove that the ghosts are "real."

As ghosts don't exist

No