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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

    as
    1. Callan Windsor & Jarkko Jääskelä & Richard Finlay, 2013. "Home Prices and Household Spending," RBA Research Discussion Papers rdp2013-04, Reserve Bank of Australia.
    2. Larry G. Epstein & Martin Schneider, 2008. "Ambiguity, Information Quality, and Asset Pricing," Journal of Finance, American Finance Association, vol. 63(1), pages 197-228, February.
    3. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1233-1260.
    4. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
    5. 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.
    6. Marion Kohler & Kylie Smith, 2005. "Housing and the Household Wealth Portfolio: The Role of Location," RBA Research Discussion Papers rdp2005-10, Reserve Bank of Australia.
    7. Bidder, R.M. & Smith, M.E., 2012. "Robust animal spirits," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 738-750.
    8. Markus K. Brunnermeier & Jonathan A. Parker & Christian Gollier, 2007. "Optimal Beliefs, Asset Prices, and the Preference for Skewed Returns," American Economic Review, American Economic Association, vol. 97(2), pages 159-165, May.
    9. LAURA BERGER-THOMSON & ELAINE CHUNG & REBECCA McKIBBIN, 2010. "Estimating Marginal Propensities to Consume in Australia Using Micro Data," The Economic Record, The Economic Society of Australia, vol. 86(s1), pages 49-60, September.
    10. Orazio P. Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2009. "Booms and Busts: Consumption, House Prices and Expectations," Economica, London School of Economics and Political Science, vol. 76(301), pages 20-50, February.
    11. James Hansen, 2009. "Australian House Prices: A Comparison of Hedonic and Repeat-Sales Measures," The Economic Record, The Economic Society of Australia, vol. 85(269), pages 132-145, June.
    12. 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, vol. 35(2), pages 135-154, June.
    13. Katherine A. Kiel & Jeffrey E. Zabel, 1999. "The Accuracy of Owner-Provided House Values: The 1978-1991 American Housing Survey," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 263-298.
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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.

    More about this item

    Keywords

    housing; consumer behaviour; beliefs;

    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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