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

Levy Economics Institute Working Paper No. 571

31 Pages Posted: 18 Mar 2008

See all articles by Hugo Benitez-Silva

Hugo Benitez-Silva

SUNY at Stony Brook University - College of Arts and Science - Department of Economics

Selcuk Eren

Hamilton College

Frank Heiland

Florida State University - Department of Economics

Sergi Jimenez-Martin

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Date Written: February 2008

Abstract

Self-reported home values are widely used as a measure of housing wealth by researchers employing a variety of data sets and studying a number of different individual and household level decisions. The accuracy of this measure is an open empirical question, and requires some type of market assessment of the values reported. In this research, we study the predictive power of self-reported housing wealth when estimating sales prices utilizing the Health and Retirement Study. We find that homeowners, on average, overestimate the value of their properties by between 5% and 10%. We also find a strong correlation between accuracy and the economic conditions (measured by the prevalent interest rate, the growth of household income, and the growth of median housing prices) at the time of the purchase of the property. While most individuals overestimate the value of their properties, those who bought during more difficult economic times tend to be more accurate, and in some cases even underestimate the value of their house. This cyclicality of the overestimation of house prices can provide some clues regarding the reasons for the difficulties currently faced by many homeowners.

Keywords: Housing Prices, Self-Reported Housing Values, Instrumental Variables, Sample Selection, Business Cycle, Interest Rates, Health and Retirement Study

JEL Classification: E21, C34, C33

Suggested Citation

Benitez-Silva, Hugo and Eren, Selcuk and Heiland, Frank and Jimenez-Martin, Sergi, How Well Do Individuals Predict the Selling Prices of Their Homes? (February 2008). Levy Economics Institute Working Paper No. 571. Available at SSRN: https://ssrn.com/abstract=1107165 or http://dx.doi.org/10.2139/ssrn.1107165

Hugo Benitez-Silva

SUNY at Stony Brook University - College of Arts and Science - Department of Economics ( email )

Stony Brook, NY 11794
United States

Selcuk Eren

Hamilton College ( email )

198 College Hill Road
Clinton, NY 13323
United States

Frank Heiland

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

Sergi Jimenez-Martin (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 67 (Phone)
(34) 93 542 17 46 (Fax)

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