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Housing Valuation, Wealth Perception, and Homeowners’ Portfolio Composition

Francisco Camões () and Sofia Vale ()
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Francisco Camões: ISCTE-IUL
Sofia Vale: ISCTE-IUL

Journal of Family and Economic Issues, 2018, vol. 39, issue 3, 494-508

Abstract: Abstract This study explores the link between wealth perception from an appreciation of the residential property price and homeowners’ preference toward asset categories pooled by risk. Household survey data for Portugal were used to build shares of low, medium, and high risk assets representing fractions of household’s total wealth. Data showed incomplete household portfolios along with housing capturing the largest share of households’ wealth, in line with the literature on composition puzzles. The findings indicate robust empirical evidence that the rate of housing valuation is an indicator of households’ wealth perception. When the housing price appreciates with respect to its initial cost, households suffer an endowment effect and tend to increase diversity in their portfolio, expanding the holdings of safe deposits as they raise the share of high risk assets.

Keywords: Household finance; Prospect theory; Portfolio composition; Homeownership; Fractional logit models (search for similar items in EconPapers)
JEL-codes: C35 C58 D14 G11 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:jfamec:v:39:y:2018:i:3:d:10.1007_s10834-018-9570-y