Taking Stock of Housing Wealth: \u000bReported Home Values

$Page 1: Taking Stock of Housing Wealth: \u000bReported Home Values$
Taking Stock of Housing Wealth: Reported Home Values

Grace W. Bucchianeri(joint with Talya Miron-Shatz)Aug 18, 2010

Self-reported home values- A pervasive measure of home

values- A subjective measure

“How much do you think this house would sell for if it were for sale in today’s market?”

- Census, PSID, AHS, ACS, SCF… 2

Subjective home values

3

Housing: the most important consumption good and a dominant asset for homeowners

Perceived, or a subjective assessment of housing value is an inherent component of many non-housing decisions Retirement (Lusardi & Mitchell 2007, Engen

et al 2005) Consumption (Agarwal 2007, Tang 2006) Savings (Klyev ad Mills 2006, Juster et al.

2005) Housing decisions including home sale

decisions and mobility considerations

Main questions1. Does the subjective assessment of home

values have implications for market behaviors and decisions?

2. Are reported home values a reasonable proxy for market values? (How might they differ from market values?)

3. What explains the gap between the subjective and the objective measures?

4

Main contributions1. Does the subjective assessment of home


Observed relationships between decisions and home values might have been driven by non-housing factors

“Market correction” (even when a sale is not involved)

Illustration through a lab experiment/ home sale

2. Are reported home values a reasonable proxy for market values?

3. What explains the gap between the subjective and the objective measures? 5




Market values not observed outside of a sale Observations from three surveys Market price-based benchmarks for

comparison3. What explains the gap between the

subjective and the objective measures?

6




3. What is the gap between the subjective and the objective measures?

Survey data – descriptive; omitted variables Experiment – identical setting; comparison of

manipulations Distinguishing between noise/ measurement

error vs. systematic differences; Systematic differences that correlate with shocks or changes of interest and will be confounding 7

Literature

Descriptive; Questions 2 & 3 Quigley (JASA, 1972): 113 St. Louis

homeowners (83 SFH); <50% response rate; appraised values as benchmark

Kiel & Zabel (REE, 1999): 3 cities; focus on tenure; new movers overestimate more

Agarwal (REE, 2007): home equity line holders from a large financial institution; bank appraisal as benchmark; ex-ante spenders (savers) overestimate (underestimate)

8

Scope

US homeowners Single-family homes (66%) Recent years

AHS: 1998-2007 HRS: 1992-2002 ERM: 2006

Renovations, personality measures Evidence from experimental data

How people respond to information and shocks

9

Experiment

10

Experiment

Student sample Assessing home value and selling the home for

profit only; no need to sell (later use/ sale) No execution risks Incentive to sell for a higher price (proportional

raffle price) 4 manipulations: Repeated observations of

reported values Selling game with 4 offers (in random order) Main aim: to test any link between reported

values and subsequent sale behavior/ outcomes Identical setting – to ascertain (unobserved) objective

housing factors do not go into reported values11

“Fishing”

12

Dummy: respondent

sold the house

Selling price of house

Round house sold

Logit Order Logit Order Logit(1) (2) (3)

(1) First valuation -0.006*** 0.003*** 0.004***(0.001) (0.001) (0.001)

Observations 953 678 678Adj. R-squared 0.078 0.004 0.014

(2) Second valuation -0.013*** 0.004** 0.009***(0.001) (0.002) (0.002)


(3) Third valuation -0.013*** 0.004*** 0.011***(0.001) (0.002) (0.001)


(4) Fourth valuation -0.017*** 0.006*** 0.015***(0.002) (0.002) (0.002)


Dependent Variables

Price 1

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Endowment effect

Price1 ($’000)= 196.206 + 5.209 * anchor + 23.589 * endowment

– 7.889 * [anchor * endowment]

N=567; R2=0.003Mean(price1)= 209.327; s.d.=118.819Average implied annual inflation = 3.971%

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Price 2

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Inflation rate

Food = 1.3% Car = 2.3% Movie ticket = 4.3%

Mean(price2)=187.325; s.d.=83.436Average implied annual inflation =

3.141%

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Price3 – Case & Shiller (2003)

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Volatility

Price3= 55.124 + 0.219*Price1 + 0.652*Price2 -

9.890*Smooth (4.787) (0.023) (0.033) (3.563)

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Financial literacy/Cognitive reflection HRS If a customer saved $10 off a $1000 chair, what

percent would the customer have saved off the original price?

Mitchell & Lusardi (2008, 2009)Basic: Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?Adv: When an investor spreads his money among different assets, does the risk of losing money: (i) Increase, (ii) Decrease (iii) Stay the same; (iv) DK; (v) Refuse.

Frederick (2005)

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Earned status: “top 10%” or “bottom 10%”

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Variable | Obs Mean Std. Dev.

-------------+----------------------------------------------------------------

flitc | 953 0.7253119 0.1584503

flitc_math | 953 0.895418 0.1868675

flitc_easy | 953 0.8913956 0.1782838

flitc_hard | 953 0.6904512 0.232859

flitc_crt | 953 0.4267226 0.3619049

-------------+--------------------------------------------------------------

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All HRS ML BasicML

AdvancedCognitive Reflection

(1) (2) (3) (3) (3)(1) Earned status -2.035 -1.698 -1.632 -1.554 -2.993

(2.479) (2.489) (2.477) (2.480) (2.540)

(2) % correct (demeaned) -6.840 -1.550 -17.305* 0.907 -3.009(11.772) (10.336) (10.600) (8.058) (5.239)

(2) Earned status 39.906*** 5.372 39.759*** 16.492 17.246*** demeaned % correct (15.515) (13.537) (14.021) (10.593) (7.287)

Observations 808 808 808 808 654Adj. R-squared 0.856 0.853 0.856 0.856 0.099

Standard errors shown in parentheses***=Significant at 1%; **=Significant at 5%; *=Significant at 10%Additional controls: Prices 1-3

Dependent Variable: Price4

Selling game In random order: $120K; $138K, $160K,

$200K

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Round 1 Round 2 Round 3 Round 4(1) (2) (3) (4)

Offer Price >= Price4 0.549 0.729 0.874 0.868(0.499) (0.082) (0.333) (0.340)

Offer Price < Price4 0.080 0.082 0.165 0.291(0.272) (0.274) (0.371) (0.455)

Pr(offer price>=price4) 0.809 0.679 0.548 0.392

Observations 953 791 633 450

Probability of Sale

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Dummy: respondent

sold the house

Selling price of house

Round house sold

Logit Order Logit Order Logit(1) (2) (3)

(1) First valuation -0.006*** 0.003*** 0.004***(0.001) (0.001) (0.001)


(2) Second valuation -0.013*** 0.004** 0.009***(0.001) (0.002) (0.002)


(3) Third valuation -0.013*** 0.004*** 0.011***(0.001) (0.002) (0.001)


(4) Fourth valuation -0.017*** 0.006*** 0.015***(0.002) (0.002) (0.002)


Dependent Variables

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Variable Obs Mean Std. Dev.Reported PricesFirst valuation 918 208.914 115.537Second valuation 918 186.667 80.438Third valuation 918 216.882 87.680Fourth valuation 773 214.898 83.010Valuation changed from t 1 to 2 918 0.830 0.376Valuation changed from t 2 to 3 918 0.825 0.381Valuation changed from t 3 to 4 773 0.481 0.500Sale OutcomesDummy: respondent sold the house 918 0.712 0.453Selling price of house 654 187.220 23.054Round house sold 654 2.569 1.115

Evidence from Survey Data

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AHS

1998, 2002, 2004, 2007 40 MSA areas Reported home price vs.

hedonic price Kiel & Zabel (1999) More MSAs included (40 vs. 3)

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Baseline: Year 2002, Milwaukee

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Difference between reported

and predicted home values

Absolute difference between reported


% difference between reported


% absolute difference between

reported and predicted home

values(1) (2) (3) (4)

year== 1998.0000 49,522.0*** 48,613.7*** 24.735*** 26.888***(5308.021) (4480.902) (2.598) (2.196)

year== 2004.0000 -31474.240*** 11.527 -16.614*** -5.578***(3725.082) (3144.624) (1.823) (1.541)

year== 2007.0000 114,646.8*** 109,745.9*** 51.300*** 45.286***(5010.002) (4229.321) (2.452) (2.072)

East North Central -44579.223 -35036.645 -23.295 -16.820East South Central -53337.500 -30063.830 -30.900 -11.570Middle Atlantic -65447.773 -20265.188 -34.891 -8.474Mountain -2219.385 -18332.893 0.748 -9.018New England 27446.183 -5062.257 16.819 -0.604Pacific 151871.616 116142.926 73.401 54.361South Atlantic -32816.066 -30336.965 -15.467 -14.950West North Central -61278.010 6076.048 -32.417 -0.788West South Central -36796.365 -8280.532 -21.534 -0.415

Observations 83,215 83,215 83,215 83,215Adj. R-squared 0.343 0.263 0.354 0.245

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values(1) (2) (3) (4)

Minneapolis-St. Paul, MN-WI-90862.370*** -100617.000*** -39.559*** -45.345***East North Central (6507.307) (5415.870) (3.121) (2.636)Pittsburgh, PA -54583.630*** 7,321.2** -28.287*** -0.617Middle Atlantic (3744.572) (3116.515) (1.796) (1.517)Phoenix, AZ -8247.169** -13391.660*** -5.175*** -5.449***Mountain (3690.037) (3071.126) (1.770) (1.495)Boston, MA 50,775.6*** 24,543.8*** 15.842*** 4.925*New England (7154.774) (5954.741) (3.432) (2.898)Sacramento, CA 162,185.0*** 116,971.4*** 84.768*** 59.253***Pacific (3652.068) (3039.526) (1.752) (1.479)San Diego, CA 154,466.6*** 127,078.9*** 76.040*** 62.985***Pacific (3926.420) (3267.862) (1.883) (1.590)Seattle-Everett, WA 88,096.8*** 58,306.4*** 42.338*** 21.758***Pacific (3693.537) (3074.039) (1.772) (1.496)Baltimore, MD -33698.930*** -53067.840*** -15.283*** -22.572***South Atlantic (6755.150) (5622.144) (3.240) (2.736)Miami, FL 14,861.9*** -2821.918 10.770*** 3.821**South Atlantic (3970.856) (3304.845) (1.905) (1.608)Tampa-St. Petersburg, FL -83064.150*** -94115.160*** -34.125*** -37.105***South Atlantic (6746.574) (5615.007) (3.236) (2.733)Kansas City, MO-KS -59889.620*** 7,798.7*** -32.064*** -0.427West North Central (3562.766) (2965.202) (1.709) (1.443)Dallas-Fort Worth, TX -43043.250*** 10,567.7*** -27.224*** 0.616West South Central (3616.762) (3010.142) (1.735) (1.465)Houston, TX -204739.100*** -76226.100*** -93.279*** -37.803***West South Central (6690.714) (5568.516) (3.209) (2.710)

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values(1) (2) (3) (4)

year== 1998.0000 37,579.6*** -- 23.129*** --(6640.121) -- (3.372) --

year== 2004.0000 33,553.3*** -- 10.527** --(8109.465) -- (4.118) --

year== 2007.0000 109,757.4*** -- 43.349*** --(6154.855) -- (3.126) --

East North Central -33021.434 -- -16.748 --East South Central -29249.186 -- -15.817 --Middle Atlantic -37156.428 -- -16.736 --Mountain -24817.353 -- -11.067 --New England -10086.411 -- -2.568 --Pacific 111942.134 -- 51.339 --South Atlantic -25781.577 -- -11.495 --West North Central 12831.960 -- -2.597 --West South Central -9961.255 -- -7.808 --


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year== 1998.0000 -19550.590*** 19,550.6*** -11.742*** 11.742***(5796.292) (5796.292) (2.120) (2.120)

year== 2004.0000 -18839.380*** 18,839.4*** -3.116*** 3.116***(3229.846) (3229.846) (1.181) (1.181)

year== 2007.0000 -42530.920*** 42,530.9*** -13.306*** 13.306***(5632.643) (5632.643) (2.060) (2.060)

East North Central 18373.454 -- 7.656 --East South Central 19176.895 -- 3.252 --Middle Atlantic 5463.735 -- -0.273 --Mountain 19611.463 -- 12.346 --New England 27599.930 -- 19.513 --Pacific -17853.419 -- -5.415 --South Atlantic 20098.507 -- 10.856 --West North Central -13767.690 -- -5.280 --West South Central 9717.753 -- -2.401 --


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values(1) (2) (3) (4)

Household income (thousands $06)250.638*** 230.551*** 0.082*** 0.030***(7.098) (5.908) (0.003) (0.003)

Household income ^ 2 (thousands $06)-0.022*** -0.019*** 0 0(0.001) (0.001) (0.000) (0.000)

Education level of householder (recoded)4,043.1*** 4,385.8*** 1.562*** 0.447***(182.575) (151.953) (0.088) (0.074)

* Age of person 251.889 840.951*** -0.062 -0.004(191.704) (159.550) (0.092) (0.078)

Age ^ 2 3.875** -0.940 0.003*** 0.001*(1.789) (1.489) (0.001) (0.001)

ln Total renovations (assumed 0 if missing) ($06)413.984*** -592.287*** 0.238*** -0.212***(113.317) (94.311) (0.054) (0.046)

Tenure in years -1677.945*** -772.592*** -0.776*** -0.157***(112.919) (93.979) (0.054) (0.046)

Tenure ^ 2 29.867*** 10.228*** 0.015*** 0.006***(2.322) (1.932) (0.001) (0.001)

year== 2004.0000 -7890.382** 3409.321 -5.356*** 3.276**(3834.956) (3191.739) (1.840) (1.553)

year== 2007.0000 110,030.7*** 106,634.8*** 49.569*** 45.082***(5093.994) (4239.605) (2.443) (2.063)

Adjusted diff across regions

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values(1) (2) (3) (4)

East North Central -37387.060 -21175.195 -18.399 -13.439East South Central -41599.520 4060.533 -24.101 -0.808Middle Atlantic -59426.045 5889.600 -32.402 0.393Mountain 16376.231 -1164.715 9.826 -0.927New England 54393.885 27023.510 23.995 8.885Pacific 110100.110 85992.707 55.704 41.689South Atlantic -21827.682 -22413.739 -10.257 -10.837West North Central -59889.620 7798.652 -32.064 -0.427West South Central -84605.813 -16539.083 -45.101 -9.054


Evidence from the ERM

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ERM Data Event Recall Method (not designed to study

housing)

Year: 2006 Location: Franklin County, OH 811 randomly chosen women interviewed

Detailed housing data from tax records Exact address – neighborhood data at zipcode

level Personality measures Predicted home renovation from AHS microdata Limited sample; no tenure data 34

ERM & HRS

35

ERM HRSTime 2006 1992-2002Representation Franklin County, OH Nationally representativeGeography Zipcode Location unknownDemography Age 19-68 Age > 50Unit of observation Individual; women only Aging householdComparison Hedonic house price Subsequent sales price (reported)

Advantages

Location, housing & neighborhood characteristics, detailed demographic

information

Repeated observation of reported value; sales price, renovation and mortgage

information

ERM: who tend to overestimate? Households with higher income/ income

status Those who consider themselves to be in

excellent health Factors relate to overestimation also

relate to higher variance Results not explained by wealth

indicators, renovations (proxy for unobserved quality), indicators to capture sentimental values/ affective disposition/ personalities

36

37

Absolute difference Difference

% absolute difference % difference

(1) (2) (3) (4)Log Household Income 3216.371 4135.663 -4.537 1.047

(24840.280) (25329.020) (7.975) (8.366)Above zip 75%tile hhd income 52,924.6* 53,020.4* 17.479* 15.718

(30610.780) (31213.060) (9.827) (10.309)Education 3319.248 3714.700 0.761 1.330

(3589.828) (3660.460) (1.152) (1.209)Age 7255.613 6580.200 3.809 2.696

(7868.294) (8023.106) (2.526) (2.650)Age ^ 2 -83.758 -77.909 -0.045 -0.033

(91.583) (93.385) (0.029) (0.031)Dummy: very satisfied with own health 54,444.9** 54,670.5** 15.165* 15.996**

(24747.450) (24250.510) (8.207) (7.833)Predicted ln(renovations) -97.912 373.028 0.560 0.801

(5696.087) (5808.159) (1.829) (1.918)Positive disposition score 12951.440 8978.792 5.945 5.199

(14559.500) (14224.430) (5.017) (4.707)Dummy: optimistic -7331.997 -6101.864 -2.507 -1.880

(9062.469) (9240.776) (2.909) (3.052)

Observations 427 427 427 427Adj. R-squared 0.011 0.011 0.004 0.008

All single-family home owner-occupants

Evidence from the HRS

38

HRS

1992-2002 (every two years) Around 2,000 age 50+

households (Reported) sales value in a

subsequent wave Drawback: selected sample; no

information on location

39

40

Absolute difference between

reported and sale home values

('06 $)

Difference between


('06 $)



('06 $)

% difference between


('06 $)(1) (2) (3) (4)

Log household income ('06 $) 8,748.1*** 7,048.1** 724.101 725.537(2630.691) (2844.624) (6117.953) (6117.962)

Above sample 75%tile household income 13,572.3* 414.164 -8446.042 -8447.423(7632.982) (8253.713) (17757.370) (17757.400)

Self-reported health = excellent 29,369.3*** 13514.680 -8812.676 -8813.314(8515.866) (9208.395) (19838.240) (19838.270)

BMI 323.446 717.234 -4593.129*** -4593.098***(591.503) (639.606) (1376.253) (1376.255)

Years of education 1529.439 -487.254 -1903.251 -1902.863(1186.929) (1283.452) (2764.085) (2764.089)

Age >= 50 24589.440 -1821.066 -7519.614 -7521.495(27153.190) (29361.350) (63137.830) (63137.920)

Renovation cost ('06 $) 0.019 -0.011 -0.013 -0.013(0.025) (0.027) (0.058) (0.058)


Conclusion This paper takes a close look at a pervasive

measure of home value. Reported home values matter in an

experimental setting: Even with market correction

Survey data: Reported home values tend to be overestimates Reported home values are higher for those with

a higher status (income, relative income, health) Not accounted for by renovations or

personalities measures Related research: what affects reported

home values41

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