Misestimating House Values: Consequences for Household Finance

Stefano Corradin, Jose Fillat and Carles Vergara-Alert

No 25-13, Working Papers from Federal Reserve Bank of Boston

Abstract: This study examines the effect of systematic household misestimation of home prices on financial decisions, including stockholdings, consumption, and asset allocation. Using exogenous variation in house values, mortgage debt, and homeowner misestimation identified through differences in local housing market characteristics, we find that a $60,000 increase in house overvaluation (approximately one standard deviation) results in a 1.1 to 1.9 percent decrease in risky stockholdings, a 1.5 to 4.3 percent increase in consumption, and a 1.3 to 2.5 percent increase in the share of risk-free assets over liquid wealth. The results highlight the need to better understand how housing wealth and beliefs about house values affect portfolio choice, spending, and overall household finance.

Keywords: household finance; portfolio choice; housing; misestimation (search for similar items in EconPapers)
JEL-codes: C61 D11 D91 G11 R21 (search for similar items in EconPapers)
Pages: 54
Date: 2025-10-01
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DOI: 10.29412/res.wp.2025.13

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