On the Nature of Self-Assessed House Prices

27 Pages Posted: 10 Jun 2016

See all articles by Morris A. Davis

Morris A. Davis

Rutgers Business School

Erwan Quintin

University of Wisconsin - Madison

Multiple version iconThere are 2 versions of this paper

Date Written: June 8, 2016

Abstract

In models of optimal household behavior, the value of housing affects consumption, savings and other variables. But homeowners do not know the value of their house for certain until they sell, so while they live in their home they must rely on local house price data to estimate its value. This paper uses data from the recent housing boom and bust to demonstrate that changes in households’ self-assessed home values are strongly consistent with the predictions of a model in which households optimally filter available house price data. Specifically, we show that self-assessed house prices did not increase as rapidly as house price indexes during the boom and did not decline as severely during the bust. A Kalman Filter model nearly perfectly replicates these data. These findings have direct implications for economists studying asking prices during booms and busts, optimal default decisions and other key housing-related phenomena.

Keywords: Housing, House Prices, Price Indexes, Kalman Filter, Self-Assessments, Housing Boom, Housing Bust

JEL Classification: R0, R2, R21

Suggested Citation

Davis, Morris A. and Quintin, Erwan, On the Nature of Self-Assessed House Prices (June 8, 2016). Available at SSRN: https://ssrn.com/abstract=2792435 or http://dx.doi.org/10.2139/ssrn.2792435

Morris A. Davis (Contact Author)

Rutgers Business School ( email )

Rutgers Business School
One Washington Park #1092
Newark, NJ 07102
United States

Erwan Quintin

University of Wisconsin - Madison ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

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