The Accuracy of Senior Households' Estimates of Home Values: Application to the Reverse Mortgage Decision

The Accuracy of Senior Households' Estimates of Home Values: Application to the Reverse Mortgage Decision

Real Estate Economics

Donald Haurin, Stephanie Moulton, Wei Shi

Abstract

Using a unique data set of more than 14,000 senior homeowners in the United States, this study compares self-assessed home values to arm's length contemporaneous appraisals. In a sample of seniors who received counseling for a reverse mortgage, the absolute value of the assessment error averages 18.9% of appraised value and it is biased upwards by 13.4%. When adjusted to reflect the general population of seniors, the size and bias of the average error fall to 16.1% and 4.2%. Both the bias and the size of the error tend to be lower for households with higher income and credit scores but it is greater for black households. In our sample period of 2009–2011, house prices were falling. The greater the rate of price reduction, the greater is the upward bias and size of the assessment error. When seniors who applied for a reverse mortgage learn that they overvalued their home, their probability of closing the loan falls.

Keywords: Self-assessed house value; Senior homeowners; Assessment errors; Debt management; Reverse mortgages; Nominal loss denial

JEL classification: R21, G12, D03, E21