| Abstract: |
In view of the dominance of housing in the average portfolio of private
households, there is a striking paucity of empirical evidence concerning
individual expectations on housing asset returns. Building on the
well-developed literature on individual stock return expectations, e.g. Kilka
and Weber (2000) or Kempf and Merkle (2014), this research aims at measuring
individual expectations on housing returns. We attempt to disentangle two
components of total housing returns: first, house prices rise and fall over
time, giving rise to asset value gains and losses. Second, analogous to
dividends for stocks, housing offers a cash flow in the form of (implicit)
rents. The expectations regarding price appreciation yield and rent yield sum
up to the total housing return expectations.In order to examining housing
return expecations, we use the second wave of the Panel on Household Finances
(PHF) conducted by the Deutsche Bundesbank. In this survey, around 4,500
German households are asked in detail about their financial situation. This
includes the composition of their portfolio and questions like the rent they
think to be able to charge for their own house as well as sociodemographic
information.Based on households’ self-reported estimates regarding the present
and future values of their own house and the implicit rental dividend on their
house, we calculate total housing return expectations and analyze their
cross-sectional distribution. The numerous items of the survey furthermore
allow us to identify key factors influencing households’ expectations about
house prices, rents and total housing returns.Total housing return
expectations display a great amount of cross-sectional variation and are
correlated to numerous socio-demographic characteristics, financial literacy
and past experiences. Surprisingly, total housing return expectations are
moderately negatively associated with the size of housing net wealth -
households more heavily invested in housing tend to ask for lower returns.
Homeowners who are also landlords are furthermore more pessimistic in their
expectations about total housing returns and both of their components,
possibly because they are more cautious and realistic due to higher experience
in real estate markets. Households who constructed their main residence are
also generally more pessimistic, possibly implying that they regard their
house primarily as consumption good. |