The Rose-Colored Glasses of Homeowners
45 Pages Posted: 16 May 2014
Date Written: April 23, 2014
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: Suggested Citation