How Well Do Individuals Predict the Selling Prices of Their Homes?

Benı́tez-Silva, Hugo; Eren, Selçuk; Heiland, Frank; Jiménez-Martín, Sergi

doi:10.2139/ssrn.1107165

Cited by 26 publications

(29 citation statements)

References 51 publications

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“…Benitez‐Silva et al . () suggest an average overstatement of between 6% and 10%. Looking over multiple decades, they find that owners who purchased their homes during boom‐times tend to be particularly optimistic about the value of their homes, consistent with the predictions of Case and Shiller ().…”

Section: Background: Theory and Literature Reviewmentioning

confidence: 99%

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Do Homeowners Mark to Market? A Comparison of Self‐Reported and Estimated Market Home Values During the Housing Boom and Bust

Chan

Dastrup

Ellen

2015

Real Estate Economics

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This article examines homeowners' self-reported values in the American Housing Survey and the Health and Retirement Study from the start of the recent housing price run-ups through recent price declines. We compare ZIP-Codelevel market-based estimates of housing prices to those derived from homeowners' self-reported values. We show that there are systematic differences which vary with market conditions and the amount of equity owners hold in their homes. When prices have fallen, homeowners systematically state that their homes are worth more than market estimates suggest, and homeowners with little or no equity in their homes state values above the market estimates to a greater degree. Over time, homeowners appear to adjust their assessments to be more in line with past market trends, but only slowly. Our results suggest that underwater borrowers are likely to understate their losses and either may not be aware that their mortgages are underwater or underestimate the degree to which they are.It has been widely reported that the value of homes in the United States fell by almost one-third between the middle of 2006 and the middle of 2009. Estimates suggest that the value of homeowners' equity in their homes fell by more than 50% over this period (Brown et al. 2010). Faced with such massive reductions in wealth, households may change their consumption, investment and labor supply decisions and they may be more likely to walk away from their mortgages, as they find themselves owing more than their house is worth. However, behavioral responses to wealth changes and negative home equity positions, including strategic default, are likely triggered by a homeowner's individual perception of changes in her or his property value rather than by 2 Chan et al.any externally estimated change in its market price. If homeowners overstate the value of their homes in declining markets, then we should observe less dramatic shifts in behavior than expected.This article examines homeowners' assessment of their home values and draws out implications for expected changes in behavior. We discuss possible mechanisms and behavioral biases that may drive differences between selfreports and market values, and our empirical analysis aims to demonstrate a reduced form effect. We build on the existing literature in several respects. First, we examine and compare homeowners' self-reported values in two national, longitudinal surveys: the American Housing Survey and the Health and Retirement Study. Second, we follow households from the start of the recent housing price run-ups through recent price declines and explore how the discrepancy between owners' reported values and market estimates varies across the market cycle and with levels of home equity. Third, in contrast to prior studies, we use restricted, geocoded versions of these datasets, which identify the neighborhood in which each household resides, allowing us to compare homeowners' self-reported values to the estimated market value of their homes, formed by inflating the reported origin...

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Section: Background: Theory and Literature Reviewmentioning

confidence: 99%

“…More recently, Benitez‐Silva et al . () use the Health and Retirement Study to conduct an analysis very similar to Goodman and Ittner (), comparing owners’ assessment of values to subsequent sales prices. Even though they use different datasets, the two studies find very similar results.…”

Section: Background: Theory and Literature Reviewmentioning

confidence: 99%

Do Homeowners Mark to Market? A Comparison of Self‐Reported and Estimated Market Home Values During the Housing Boom and Bust

Chan

Dastrup

Ellen

2015

Real Estate Economics

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“…According to Corelogic, slightly more than 10% of properties had greater than 25% negative equity, while slightly less than 4% do so in the PSID. While there could be many reasons for the divergence in equity estimates between the two databases, households tend to over-report house values as compared to actual selling prices by 5% to 10% (see Benítez-Silva et al [2008]). Thus, a self-reported CLTV ratio of 90% is on the verge of realizing negative equity in the event of a sale.…”

Section: Psid Variable Definitions and Summary Statisticsmentioning

confidence: 99%

Unemployment, Negative Equity, and Strategic Default

et al. 2013

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract: Using new household-level data, we quantitatively assess the roles that job loss, negative equity, and wealth (including unsecured debt, liquid assets, and illiquid assets) play in default decisions. In sharp contrast to prior studies that proxy for individual unemployment status using regional unemployment rates, we find that individual unemployment is the strongest predictor of default. We find that individual unemployment increases the probability of default by 5-13 percentage points, ceteris paribus, compared with the sample average default rate of 3.9 percent. We also find that only 13.9 percent of defaulters have both negative equity and enough liquid or illiquid assets to make one month's mortgage payment. This finding suggests that "ruthless" or "strategic" default during the 2007-09 recession was relatively rare and that policies designed to promote employment, such as payroll tax cuts, are most likely to stem defaults in the long run rather than policies that temporarily modify mortgages. Terms of use: Documents inJEL classification: E24, E30, G21, E60, D12, D14, E51, G33, L85, R31

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“…Motivated by the worldwide housing market collapse, there is some recent literature on the question whether households have an accurate perception of the value of their house, notably Benítez‐Silva et al () and Henriques () for the United States and Windsor, La Cava, and Hansen () for Australia. However, the notion that homeowners misestimate house prices is not new (Agarwal ).…”

Section: Resultsmentioning

confidence: 99%

The Rose‐Tinted Spectacles of Homeowners

Cruijsen¹,

Jansen²,

Rooij³

2016

Journal of Consumer Affairs

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Based on annual household surveys between 2011 and 2014 and additional evidence from a customized survey in 2013, we document that a sizable group of homeowners in the Netherlands has a rosy picture of the value of their house. Even homeowners who are arguably well informed tend to overestimate the value of their house. Multivariate regression analyses suggest that this overestimation is positively related to the mortgage loan-to-value ratio and the tenure of the owner-occupier. Moreover, homeowners tend to overestimate the value of the house when the actual value falls below the purchase price of the house. We discuss rational interpretations of these findings as well as psychological explanations such as loss aversion or an endowment effect.

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How Well Do Individuals Predict the Selling Prices of Their Homes?

Cited by 26 publications

References 51 publications

Do Homeowners Mark to Market? A Comparison of Self‐Reported and Estimated Market Home Values During the Housing Boom and Bust

Do Homeowners Mark to Market? A Comparison of Self‐Reported and Estimated Market Home Values During the Housing Boom and Bust

Unemployment, Negative Equity, and Strategic Default

The Rose‐Tinted Spectacles of Homeowners

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