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People who have bigger spending habits and higher levels of debt tend to overvalue the price of their homes.
A Reserve Bank of Australia study has found that household consumption, debt levels and occupier age all play a key role in determining whether people overvalue or undervalue their homes.
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The study compared the market valuation of properties with what price homeowners estimate their properties should be valued at.
“Homeowners that appear to overvalue their homes typically spend more and are more leveraged than owners who appear unbiased,” according to the report’s authors.
“In contrast, homeowners that appear to undervalue their homes spend less and are less leveraged… Our findings suggest that beliefs about home values affect household financial decisions.”
Age is another relevant factor, with older people tending to overestimate home prices, the report found.
Unemployment also affects how people regard their homes, because people in areas with higher unemployment are more likely to undervalue their properties.
People who have lived in their homes for a longer period of time were also found to undervalue their homes.
