The Rose-Colored Glasses of Homeowners

45 Pages Posted: 16 May 2014

See all articles by Carin van der Cruijsen

Carin van der Cruijsen

De Nederlandsche Bank

David-Jan Jansen

De Nederlandsche Bank

Maarten van Rooij

De Nederlandsche Bank; Netspar

Date Written: April 23, 2014

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.

Keywords: housing prices, endowment effect, loss aversion, households, survey data

JEL Classification: R31, D12

Suggested Citation

van der Cruijsen, Carin and Jansen, David-Jan and van Rooij, Maarten, The Rose-Colored Glasses of Homeowners (April 23, 2014). De Nederlandsche Bank Working Paper No. 421. Available at SSRN: https://ssrn.com/abstract=2437350 or http://dx.doi.org/10.2139/ssrn.2437350

Carin van der Cruijsen (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

HOME PAGE: http://www.dnb.nl/en/onderzoek-2/onderzoekers/overzicht-persoonlijke-paginas/index.jsp

David-Jan Jansen

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

HOME PAGE: http://sites.google.com/site/djansenresearch

Maarten van Rooij

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

HOME PAGE: http://www.dnb.nl/en/onderzoek-2/onderzoekers/overzicht-persoonlijke-paginas/dnb150127.jsp

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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