Written by Staff Reporter (20 May 2014)
In one-quarter of Australian postcodes, owners significantly over- or underestimate the value of their property, an analysis by the Reserve Bank of Australia (RBA) has found.
The RBA report examined homeowners’ perceptions of their property’s value as compared to market value in postcodes around the country.
It found that owners in half of all postcodes estimate their asset within 11 per cent of the true price.
However, in a quarter of areas, owner’s average valuations are more than 20 per cent away from the average market value.
The research finds that a person’s belief about the value of their home may impact their financial behaviour.
“Postcodes that appear to overvalue their homes typically spend more, have higher leverage and choose riskier portfolios than postcodes that do not,” the paper states.
On the flip side, higher unemployment in a region is associated with underestimating the value of property.
The report states “households are less likely to be optimistic, or even are conservative (pessimistic), the more likely they are to experience an unemployment shock”.
Older homeowners seem particularly vulnerable to over-valuing their asset, with each yearly increase in the average age of homeowners adding 0.25 per cent in the valuation difference.
At the same time, this may be counteracted if the owner has lived in the property for a long period of time.
The report finds the longer people live in a property, the more likely they are to underplay the value of their home.
Article Source: Smart Property Investment: The magazine by investors for investors (http://spionline.com.au/home/)
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