How much did you pay for your house?

Paper by Yvonne McCarthy and Kieran McQuinn on “attenuation bias” (i.e. tendency to underestimate) in recall of house prices.

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18 thoughts on “How much did you pay for your house?”

  1. Do these people have nothing better to do?

    Whatever about the past, the new reality can be checked any day of the week on Daft.ie. That is to say, for any particular house on offer, a record of actual house prices paid in the area and, in respect of houses for sale, a detailed record of the initial asking price and subsequent asking price developments!

    In short, Ireland has caught up with standard practice in countries with informed property markets. Curiously, this is no guarantee against property bubbles.

  2. There’s something fishy about this. Are we sure the study isn’t simply picking up the effects of scams? Suppose a buyer pays €300k for a house, but wants to borrow €330k with a view to the cost of carrying out improvements and maybe furnishing the place. A surveyor obligingly values the property at €330k. My reading of the study is that an honest answer (the cost was €300k) will be taken to indicate recall bias.

  3. Thanks Liam for posting this looks like a quick read,reminds me off the questions a doctor asks bout your drinking or smoking,who wants remember biggest mistake their life’s I’ve forgotten her name kinda….

    First one was a boarding or rooming house beside the university of toronto in the Annex area,immortalized by Jane Jacobs who went on to write quite a bit about NY.

    It was listed for 600,000 picked it up for just over 300,000 was occupied and you could not gain access,made a low ball offer which was accepted subject to vacant possession.The sellers were an estate their Dad had passed,he had been having a relationship with one tenants who refused to do showings or move out.She left sedated on a stretcher the morning off closing and took to standing outside,as an immigrant and broke trying make a few bucks the “blood on my hands” thing bad karma didn’t bother me one bit,a bit creepy her outside the odd time but..

    Financed with a first mortgage and insured the top slice via a first time buyers thing in Canada had cash in retirement or savings plans,borrowed the balance from a “hard money” lender at usurious rates.

    Oh that was the easy part it then had to be renovated which was completed and it was shortly flipped at more than original ask:)
    I know Ernie I know appalling!

  4. HI Liam

    I’m confused about what the effect of this is…I can understand that in a time of house price appreciation, underestimating how much you paid would make one feel richer, and therefore you might spend more (? is that it?). But in a world of severe depreciation…..does that also make you feel, if not richer, then at least, not as poor….and therefore…you’d spend more than you would if you consciously realised the full impact of the depreciation?

    We built our house and I used to keep a very organised spreadsheet of costs. When I reached our budget limit on the spreadsheet, I stopped counting and kept spending. So I’d have to underestimate too….

  5. I have a paper about to come out showing something similar across asset classes in the Netherlands. In general people tend to underestimate their assets and, as this paper shows, what they paid for assets. One interpretation is some sort of logarithmic scaling that people employ whereby they round down large numbers. I have seen this also in expenditure data. As the authors point out a simple explanation would be to give a more rose-tinted view of a potentially bad experience. There are other examples where people are motivated to round down big numbers even when they are filling out a survey anonymously to present a better image of themselves.

    @Sarah

    The paper is basically about what people remember rather than their current behaviour. In terms of how it might effect current behaviour, it might (and this is just speculating) be a positive thing in that it could make people less susceptible to sunk costs. It might even cheer some people up and even save a lot of marital strain if people can remember their losses as being less than they were. It might be also be a potential reason why people get back on the property horse so quickly after falling off. Though again all of this is just a quick reaction to the paper.

    I can’t see it in the paper but it would be worth checking whether people are doing the currency conversion correctly for pre-euro houses. Would be interesting in itself. Having said that, you might expect more measurement error for older houses anyway but could still check whether there is a break around the time of the euro. If people are remembering the punt amount and not converting it into euro then that would lead to a greater degree of downward bias.

  6. 42% in neg equity just under 20% off the 2,000 in arrears in the study/survey,ugly ugly lumping off BTL again whats that about and excluding sub prime as usual.

    “Add psychology into the mix – for example, Kahneman’s insight (with the late Amos Tversky) that we treat the possibility of a loss differently from the way we treat the possibility of a gain – and the task of the behavioural economist is to incorporate such ideas without losing the mathematically-solvable nature of the model”

    http://www.ft.com/intl/cms/s/2/9d7d31a4-aea8-11e3-aaa6-00144feab7de.html#axzz2wqPG6fGP

  7. The sample relates to mortgaged households. If one had bought a 330k house with a 275k mortgage but recalled the price at 300k that doesn’t affect the actual debt. The current value of the net equity in the house, be it positive or negative. is surely the more relevant variable impacting on the household consumption decision.

  8. People think its clever/prudent to to be modest about their wealth.
    Or there is a more simple explanation.
    Nostalgia exists.

  9. Lemme get this straight – these guys got paid for producing a paper that sez, if you’re working on recall instead of verifiable fact, your conclusions might be distorted.

  10. @ JG

    Issing’s one-sided view of events is too blatantly erroneous to be taken seriously; as a letter in reply demonstrates.

    http://www.ft.com/intl/cms/s/0/2ce629ae-b4fd-11e3-9166-00144feabdc0.html#axzz2wd7kvOIA

    Germany has recognised that it must contribute financially to a solution, is doing so, but must dissimulate the fact because of a strong current of domestic opinion (as reflected in the comments of Issing) and avoid an open-ended commitment because of genuine constitutional constraints.

    On the ECB public pressure on bond sales – evidently authorised – one could advance two reasons (i) defence of monetary orthodoxy (the ECB simply “noted” the PN arrangement) and (ii) a means of exercising continued pressure on an increasingly dysfunctional and distracted government to stick to its budgetary last. The ability of Irish politicians to view all their actions solely through a domestic glass, when they are caught up in a much wider situation involving other countries and institutions to which the state is a party, is not a uniquely Irish phenomenon. However, constant harping on the “savings” from the “deal” on the promissory notes which implies that what occurred was, and remains, a form of monetary financing, is hardly likely to improve the humour of the ECB, and Weidmann in particular.

    The text of what was actually agreed on the SRM should surface shortly. The text of the inter-governmental agreement on the SRF is still firmly under wraps, no doubt because there is a major difference of opinion, as you know, as to how bank contributions should be calculated, notably between Germany and France whose banking structures are very different.

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