- European Central Bank
Wednesday, November 2, 2016
Polo Santa Marta, Via Cantarane 24, Room 1.59
We use data on self-reported and market house values to present empirical evidence of house value misperception at the household level. We build an optimal portfolio choice model that features misperception, as observed in the data. Households make consumption and portfolio decisions on housing and non-housing assets with transaction costs in the housing adjustments. The household uses subjective housing valuations, which may differ from the market value. It is costly to observe the actual market value, therefore the household has to decide each period whether to pay for observing the market value or not, and then whether to move to a different house or not. Our model delivers several empirical implications that we test with the PSID restricted sample with information at the zipcode level.