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The Accuracy of Senior Households’ Estimates of Home Values: Application to the Reverse Mortgage Decision

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  • Donald Haurin
  • Stephanie Moulton
  • Wei Shi

Abstract

Using a unique data set of more than 14,000 senior homeowners in the United States, this study compares self‐assessed home values to arm's length contemporaneous appraisals. In a sample of seniors who received counseling for a reverse mortgage, the absolute value of the assessment error averages 18.9% of appraised value and it is biased upwards by 13.4%. When adjusted to reflect the general population of seniors, the size and bias of the average error fall to 16.1% and 4.2%. Both the bias and the size of the error tend to be lower for households with higher income and credit scores but it is greater for black households. In our sample period of 2009–2011, house prices were falling. The greater the rate of price reduction, the greater is the upward bias and size of the assessment error. When seniors who applied for a reverse mortgage learn that they overvalued their home, their probability of closing the loan falls.

Suggested Citation

  • Donald Haurin & Stephanie Moulton & Wei Shi, 2018. "The Accuracy of Senior Households’ Estimates of Home Values: Application to the Reverse Mortgage Decision," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 46(3), pages 655-697, September.
    • Handle: RePEc:bla:reesec:v:46:y:2018:i:3:p:655-697
    DOI: 10.1111/1540-6229.12197
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    Cited by:

    1. Naqun Huang & Jing Li & Amanda Ross, 2022. "Housing wealth shocks, home equity withdrawal, and the claiming of Social Security retirement benefits," Economic Inquiry, Western Economic Association International, vol. 60(2), pages 620-644, April.
    2. Gao, Nan & Liang, Pinghan, 2019. "Home value misestimation and household behavior: Evidence from China," China Economic Review, Elsevier, vol. 55(C), pages 168-180.
    3. Jason R. Blevins & Wei Shi & Donald R. Haurin & Stephanie Moulton, 2020. "A Dynamic Discrete Choice Model Of Reverse Mortgage Borrower Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1437-1477, November.

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