The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions

Posted: 25 Jul 2006

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Multiple version iconThere are 3 versions of this paper

Abstract

Using a unique dataset of 81,943 house value estimates by the homeowners and their financial institution, I find that homeowners overestimate their house value by 3.1%. After controlling for homeowners' socioeconomic characteristics, I find that ex-ante homeowners who rate (cash-out) refinance an existing loan to increase savings (consumption) are significantly more likely to underestimate (overestimate) their house value. Moreover, overestimators (underestimators) are more likely to increase (reduce) their spending ex post. Finally, I also find that underestimators are more likely to prepay their loans and overestimators are more likely to default on their loans.

Keywords: House Value, Home Equity, Consumption and Saving, Consumer Credit, Prepayment and Default

JEL Classification: D11, E21, G21, R31

Suggested Citation

Agarwal, Sumit, The Impact of Homeowners' Housing Wealth Misestimation on Consumption and Saving Decisions. Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=918482

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

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