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Home Price Beliefs in Australia

Author

Listed:
  • Callan Windsor

    (Reserve Bank of Australia)

  • Gianni La Cava

    (Reserve Bank of Australia)

  • James Hansen

    (Reserve Bank of Australia)

Abstract

We document some new stylised facts about how Australian homeowners value their homes using household panel data and unit-record data on home sale prices. We find that homeowners' price beliefs are unbiased at the postcode level, on average, although there is considerable dispersion in the difference between beliefs and prices across postcodes. Household characteristics, such as age and tenure, and the regional unemployment rate are correlated with differences between beliefs and prices. We also find evidence that the difference between beliefs and prices has explanatory power for average household consumption, leverage and portfolio decisions after controlling for the market-inferred value of the home. These facts provide empirical evidence to support recent literature on the importance of belief formation for household decision-making.

Suggested Citation

  • Callan Windsor & Gianni La Cava & James Hansen, 2014. "Home Price Beliefs in Australia," RBA Research Discussion Papers rdp2014-04, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2014-04
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    File URL: https://www.rba.gov.au/publications/rdp/2014/pdf/rdp2014-04.pdf
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    References listed on IDEAS

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    Cited by:

    1. Ellis Connolly & Gianni La Cava & Matthew Read, 2015. "Housing Prices and Entrepreneurship: Evidence for the Housing Collateral Channel in Australia," RBA Annual Conference Volume (Discontinued), in: Angus Moore & John Simon (ed.),Small Business Conditions and Finance, Reserve Bank of Australia.
    2. Benítez-Silva, Hugo & Eren, Selçuk & Heiland, Frank & Jiménez-Martín, Sergi, 2015. "How well do individuals predict the selling prices of their homes?," Journal of Housing Economics, Elsevier, vol. 29(C), pages 12-25.
    3. Gao, Nan & Liang, Pinghan, 2019. "Home value misestimation and household behavior: Evidence from China," China Economic Review, Elsevier, vol. 55(C), pages 168-180.
    4. Matthew Read & Chris Stewart & Gianni La Cava, 2014. "Mortgage-related Financial Difficulties: Evidence from Australian Micro-level Data," RBA Research Discussion Papers rdp2014-13, Reserve Bank of Australia.

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    More about this item

    Keywords

    housing; consumer behaviour; beliefs;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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