Most of us cannot remember how much we paid for homes
Published 22/03/2014 | 02:30
MOST people can't remember the actual price they paid for their house, a new survey has found.
They tend to recall paying a lower price, but the value of their homes has not fallen as much as they think, Central Bank research has found.
Despite this, householders that get confused about the price they paid cut back on spending.
Housing valuations tend to be used as an indicator of wealth. When people feel they have lost a lot of their wealth they tend to spend less, economists have found.
The Central Bank study found most households tend to understate the true purchase price. Six out of 10 claimed to have paid less for their homes than they actually did.
Most of those questioned getting the purchase price wrong by tens of thousands of euro.
More than one in five of those polled underestimated the price they paid for their home by up to €30,000.
Another third were out by between €30,000 and €120,000. Extreme volatility in housing prices during the boom and bust years was given as one of the key reasons people got it so wrong.
"Our results suggest that Irish households have some difficulty in accurately remembering their house price, with error measures indicating that most households are inclined to understate the true purchase price of their property," new report states.
Most people who bought during the boom are not as badly off as they think, according to the research 'Attenuation bias, recall error and the housing wealth effect'. This is because they paid more for the home than they think.
If people could accurately recall what they paid for their homes their loss of housing wealth would be far less than they assume.
The research is based on financial returns made by banks to the Central Bank and a survey of those householders with mortgages.
This highlighted the differences between the prices actually paid for house purchase and the price households remember paying, researchers Yvonne McCarthy and Kieran McQuinn found. Four out of 10 mortgages were issued between 2004 and 2007 – when property prices were at their highest.
Younger households and higher-income families are better able to recall the actual price paid for their home.
Those with a third-level qualification tend to be better at recalling what they paid for their house than those who did not go to college.
The researchers warned that studies that rely on what people think they paid for their homes, when assessing housing wealth, are likely to be biased and likely to contain errors.
"Where households are unable to accurately remember their house price on a systematic basis, the corresponding wealth-effect estimates are likely to suffer from classical attenuation bias," the study found.
Irish IndependentFollow @Indobusiness