Advanced Search
MyIDEAS: Login to save this paper or follow this series

How Well do Individuals Predict the Selling Prices of their Homes?

Contents:

Author Info

  • Hugo Benítez-Silva
  • Selcuk Eren
  • Frank Heiland
  • Sergi Jiménez-Martín

Abstract

Self-reported home values are widely used as a measure of housing wealth by researchers employing a variety of data sets and studying a number of different individual and household level decisions. The accuracy of this measure is an open empirical question, and requires some type of market assessment of the values reported. In this research, we study the predictive power of self-reported housing wealth when estimating sales prices utilizing the Health and Retirement Study. We find that homeowners, on average, overestimate the value of their properties by between 5% and 10%. We also find a strong correlation between accuracy and the economic conditions (measured by the prevalent interest rate, the growth of household income, and the growth of median housing prices) at the time of the purchase of the property. While most individuals overestimate the value of their properties, those who bought during more difficult economic times tend to be more accurate, and in some cases even underestimate the value of their house. This cyclicality of the overestimation of house prices can provide some clues regarding the reasons for the difficulties currently faced by many homeowners.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://documentos.fedea.net/pubs/dt/2008/dt-2008-10.pdf
Download Restriction: no

Bibliographic Info

Paper provided by FEDEA in its series Working Papers with number 2008-10.

as in new window
Length:
Date of creation: Feb 2008
Date of revision:
Handle: RePEc:fda:fdaddt:2008-10

Contact details of provider:
Web page: http://www.fedea.net

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc.
  2. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, Elsevier, vol. 2(4), pages 339-357, December.
  3. Edward L. Glaeser & Joseph Gyourko & Raven Saks, 2005. "Why Have Housing Prices Gone Up?," NBER Working Papers 11129, National Bureau of Economic Research, Inc.
  4. Ben Bernanke, 1990. "On the Predictive Power of Interest Rates and Interest Rate Spreads," NBER Working Papers 3486, National Bureau of Economic Research, Inc.
  5. Karl E. Case & Robert J. Shiller & John M. Quigley, 2001. "Comparing Wealth Effects: The Stock Market Versus the Housing Market," NBER Working Papers 8606, National Bureau of Economic Research, Inc.
  6. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  7. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2002. "Instrumental variables and GMM: Estimation and testing," Boston College Working Papers in Economics, Boston College Department of Economics 545, Boston College Department of Economics, revised 14 Feb 2003.
  8. Motohiro Yogo, 2004. "Estimating the Elasticity of Intertemporal Substitution When Instruments Are Weak," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 797-810, August.
  9. F. Thomas Juster & Joseph P. Lupton & James P. Smith & Frank Stafford, 2004. "The decline in household saving and the wealth effect," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2004-32, Board of Governors of the Federal Reserve System (U.S.).
  10. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/GMM estimation and testing," Boston College Working Papers in Economics, Boston College Department of Economics 667, Boston College Department of Economics, revised 05 Sep 2007.
  11. Karl E. Case & Robert J. Shiller, 1988. "The Behavior of Home Buyers in Boom and Post-Boom Markets," NBER Working Papers 2748, National Bureau of Economic Research, Inc.
  12. Hilary Williamson Hoynes & Daniel McFadden, 1994. "The Impact of Demographics on Housing and Non-Housing Wealth in the United States," NBER Working Papers 4666, National Bureau of Economic Research, Inc.
  13. Eric M. Engen & William G. Gale & Cori R. Uccello, 1999. "The Adequacy of Retirement Saving," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(2), pages 65-188.
  14. Alan L. Gustman & Thomas L. Steinmeier, 1998. "Effects of Pensions on Saving: Analysis with Data from the Health and Retirement Study," NBER Working Papers 6681, National Bureau of Economic Research, Inc.
  15. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(1), pages 307-362, February.
  16. Steven F. Venti & David A. Wise, 2000. "Aging and Housing Equity," NBER Working Papers 7882, National Bureau of Economic Research, Inc.
  17. Campbell, John & Cocco, Joao, 2007. "How Do House Prices Affect Consumption? Evidence from Micro Data," Scholarly Articles 3122600, Harvard University Department of Economics.
  18. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," Working Papers, University of Michigan, Michigan Retirement Research Center wp114, University of Michigan, Michigan Retirement Research Center.
  19. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, American Economic Association, vol. 70(2), pages 250-57, May.
  20. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 115-132, July.
  21. Brian Bucks & Karen Pence, 2006. "Do homeowners know their house values and mortgage terms?," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2006-03, Board of Governors of the Federal Reserve System (U.S.).
  22. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0151, National Bureau of Economic Research, Inc.
  23. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(2), pages 339-57, April.
  24. Disney, Richard & Henley, Andrew & Stears, Gary, 2002. "Housing costs, house price shocks and savings behaviour among older households in Britain," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 32(5), pages 607-625, September.
  25. Skinner, Jonathan, 1989. "Housing wealth and aggregate saving," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 19(2), pages 305-324, May.
  26. Vladimir Klyuev & Paul Mills, 2007. "Is Housing Wealth an “ATM”? The Relationship Between Household Wealth, Home Equity Withdrawal, and Saving Rates," IMF Staff Papers, Palgrave Macmillan, vol. 54(3), pages 539-561, July.
  27. Englund, Peter & Ioannides, Yannis M., 1997. "House Price Dynamics: An International Empirical Perspective," Journal of Housing Economics, Elsevier, Elsevier, vol. 6(2), pages 119-136, June.
  28. Sergi Jiménez-Martin, 2006. "Strike Outcomes and Wage Settlements in Spain," LABOUR, CEIS, CEIS, vol. 20(4), pages 673-698, December.
  29. Hugo Benitez-Silva & Debra S. Dwyer & Wayne-Roy Gayle & Tom Muench, 2005. "Expectations in Micro Data: Rationality Revisited," Department of Economics Working Papers, Stony Brook University, Department of Economics 05-04, Stony Brook University, Department of Economics.
  30. Michael Hurd & Monika Reti, 2003. "The Effects of Large Capital Gains on Work and Consumption: Evidence from Four Waves of the HRS," Working Papers, RAND Corporation Publications Department 03-14, RAND Corporation Publications Department.
  31. James F. Moore & Olivia S. Mitchell, . "Projected Retirement Wealth and Saving Adequacy," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 98-1, Wharton School Pension Research Council, University of Pennsylvania.
  32. Kam-Ki Tang, 2006. "The wealth effect of housing on aggregate consumption," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 13(3), pages 189-193.
  33. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc.
  34. Edward L. Glaeser & Joseph Gyourko, 2006. "Housing Dynamics," NBER Working Papers 12787, National Bureau of Economic Research, Inc.
  35. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, Econometric Society, vol. 47(1), pages 153-61, January.
  36. John Taylor, 2007. "Housing and Monetary Policy," Discussion Papers, Stanford Institute for Economic Policy Research 07-003, Stanford Institute for Economic Policy Research.
  37. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 20(4), pages 518-29, October.
  38. Sumit Agarwal, 2007. "The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 35(2), pages 135-154, 06.
  39. Olsen, Randall J, 1980. "A Least Squares Correction for Selectivity Bias," Econometrica, Econometric Society, Econometric Society, vol. 48(7), pages 1815-20, November.
  40. Frederic S. Mishkin, 2007. "Housing and the monetary transmission mechanism," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 359-413.
  41. Jensen, Peter & Rosholm, Michael & Verner, Mette, 2002. "A Comparison of Different Estimators for Panel Data Sample Selection Models," Working Papers, University of Aarhus, Aarhus School of Business, Department of Economics 02-1, University of Aarhus, Aarhus School of Business, Department of Economics.
  42. Hugo Benítez-Silva & Debra S. Dwyer, 2005. "The Rationality of Retirement Expectations and the Role of New Information," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 587-592, August.
  43. Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, MIT Press, vol. 8(6), pages 1179-1207, December.
  44. James M. Poterba, 1991. "House Price Dynamics: The Role of Tax Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 143-204.
  45. Richard Disney & Sarah Bridges & John Gathergood, . "Housing Wealth and Household Indebtedness: Is there a Household ‘Financial Accelerator’?," Discussion Papers 06/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  46. Kostas Tsatsaronis & Haibin Zhu, 2004. "What drives housing price dynamics: cross-country evidence," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, March.
  47. Ihlanfeldt, Keith R. & Martinez-Vazquez, Jorge, 1986. "Alternative value estimates of owner-occupied housing: Evidence on sample selection bias and systematic errors," Journal of Urban Economics, Elsevier, vol. 20(3), pages 356-369, November.
  48. Martin Farnham & Purvi Sevak, 2007. "Housing Wealth and Retirement Timing," Working Papers, University of Michigan, Michigan Retirement Research Center wp172, University of Michigan, Michigan Retirement Research Center.
  49. Harris, Jack C, 1989. "The Effect of Real Rates of Interest on Housing Prices," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 2(1), pages 47-60, February.
  50. Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 249-65, April.
  51. Patterson, Kerry D & Pesaran, Bahram, 1992. "The Intertemporal Elasticity of Substitution in Consumption in the United States and the United Kingdom," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 573-84, November.
  52. Reichert, Alan K, 1990. "The Impact of Interest Rates, Income, and Employment upon Regional Housing Prices," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 3(4), pages 373-91, December.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Are people any good at predicting the selling price of their home?
    by Miguel in Simoleon Sense on 2010-08-26 15:07:08
  2. People overvalue their own homes
    by Economic Logician in Economic Logic on 2009-01-16 16:00:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michael Brocker & Christopher Hanes, 2013. "The 1920s American Real Estate Boom and the Downturn of the Great Depression: Evidence from City Cross-Sections," NBER Chapters, National Bureau of Economic Research, Inc, in: Housing and Mortgage Markets in Historical Perspective, pages 161-201 National Bureau of Economic Research, Inc.
  2. Kelly, Robert & McCarthy, Yvonne & McQuinn, Kieran, 2011. "Impairment and Negative Equity in the Irish Mortgage Market," Research Technical Papers 9/RT/11, Central Bank of Ireland.
  3. Thomas Y. Mathä & Alessandro Porpiglia & Michael Ziegelmeyer, 2014. "Household wealth in the euro area: The importance of intergenerational transfers, homeownership and house price dynamics," BCL working papers, Central Bank of Luxembourg 91, Central Bank of Luxembourg.
  4. Alice M. Henriques, 2013. "Are homeowners in denial about their house values? comparing owner perceptions with transaction-based indexes," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2013-79, Board of Governors of the Federal Reserve System (U.S.).
  5. Khalifa, Sherif & Seck, Ousmane & Tobing, Elwin, 2013. "Housing wealth effect: Evidence from threshold estimation," Journal of Housing Economics, Elsevier, Elsevier, vol. 22(1), pages 25-35.
  6. Carin van der Cruijsen & David-Jan Jansen & Maarten van Rooij, 2014. "The rose-colored glasses of homeowners," DNB Working Papers, Netherlands Central Bank, Research Department 421, Netherlands Central Bank, Research Department.
  7. Gerardi, Kristopher & Herkenhoff, Kyle F. & Ohanian, Lee E. & Willen, Paul S., 2013. "Unemployment, negative equity, and strategic default," Working Paper, Federal Reserve Bank of Atlanta 2013-04, Federal Reserve Bank of Atlanta.
  8. Florent Buisson, 2013. "Loss Aversion and Seller Behavior : Evidence from the Housing Market : Comment Working Paper," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 13005, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  9. Florent Buisson, 2013. "Loss Aversion and Seller Behavior: Evidence from the Housing Market: Comment Working Paper," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00786294, HAL.
  10. Thomas Y. Mathä & Alessandro Porpiglia & Michael Ziegelmeyer, 2014. "Wealth differences across borders and the effect of real estate price dynamics: Evidence from two household surveys," BCL working papers, Central Bank of Luxembourg 90, Central Bank of Luxembourg.
  11. repec:hal:journl:halshs-00786294 is not listed on IDEAS

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Economic Logic blog

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fda:fdaddt:2008-10. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carmen Arias).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.