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The rose-colored glasses of homeowners

  • Carin van der Cruijsen
  • David-Jan Jansen
  • Maarten van Rooij

Based on annual household surveys between 2003 and 2012, we show that owners have a rosy picture of their current house value and hold optimistic views on the historical and expected change in house value compared to general price trends. Optimism is both driven by loss aversion and an endowment effect as overestimation of the house value is positively related to the mortgage loan-to-value ratio and tenure of the owner-occupier. After several years of national declines in house prices, the estimates in our sample have become more realistic but the glasses of homeowners remain rose-colored. Even groups of homeowners that are arguably well-informed, e.g. homeowners with moving plans and homeowners that are in charge of household finances, overestimate the value of their house.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 421.

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Date of creation: Apr 2014
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Handle: RePEc:dnb:dnbwpp:421
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Web page: http://www.dnb.nl/en/

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