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The rose-colored glasses of homeowners

Author

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

Abstract

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.

Suggested Citation

  • Carin van der Cruijsen & David-Jan Jansen & Maarten van Rooij, 2014. "The rose-colored glasses of homeowners," DNB Working Papers 421, Netherlands Central Bank, Research Department.
  • Handle: RePEc:dnb:dnbwpp:421
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    File URL: https://www.dnb.nl/en/binaries/Working%20Paper%20421_tcm47-306762.pdf
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Dorinth van Dijk & Marc Francke, 2015. "Internet search behavior, liquidity and prices in the housing market," DNB Working Papers 481, Netherlands Central Bank, Research Department.
    3. Gete, Pedro, 2015. "Housing demands, savings gluts and current account dynamics," Globalization and Monetary Policy Institute Working Paper 221, Federal Reserve Bank of Dallas, revised 01 Aug 2015.

    More about this item

    Keywords

    housing prices; endowment effect; loss aversion; households; survey data;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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