Working Paper: CEPR ID: DP10946
Authors: Olympia Bover
Abstract: I analyze new data on subjective probabilistic expectations on house prices collected in the Spanish Survey of Household Finances. Households are asked to distribute ten points among five different scenarios for the change in the price of their homes over the next 12 months. This paper is the first empirical study to document the beliefs of a representative sample of households about the future value of their homes. It also reviews the methodology of expectation measurement and recent work on household subjective probabilities. I model individual subjective probability densities using splines, construct quantiles from those densities, and analyze how the heterogeneity in the individual distributions relates to differences in housing and household characteristics. An important result of the paper is that women are more optimistic about the evolution of house prices than men. Location at the postal code level accounts for a large fraction of the variation in the subjective distributions across households. Finally, I provide some results on how subjective expectations matter for predicting spending behavior. Housing investment and car purchases are negatively associated with pessimistic expectations about future house price changes and with uncertainty about those expectations.
Keywords: Consumption; Gender bias; House price expectations; Household subjective probabilistic expectations; Portfolio decisions
JEL Codes: C81; D12; D14; D84; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| subjective house price expectations (R21) | housing investment (R31) |
| subjective house price expectations (R21) | car purchases (L81) |
| gender (J16) | subjective house price expectations (R21) |
| location (R32) | subjective house price expectations (R21) |
| pessimistic expectations about future house price changes (R21) | housing investment (R31) |
| pessimistic expectations about future house price changes (R21) | car purchases (L81) |
| wealth (D14) | impact of expectations on consumption decisions (D12) |