HOW MUCH DID you pay for your house?
It seems a simple question, but according to the Central Bank, it’s one that many of us get wrong.
In fact, new research shows that most people are inclined to understate the true value of their property.
According to the authors of a central bank report on the issue, this means that you could be underestimating your wealth by up to 70 per cent compared to if you had the actual price you bought your house for to hand. This is because so much of a person’s overall wealth is tied to the value of their property. Read the report here.
Why does this happen?
The Central Bank research blames a few factors for our inability to accurately remember what we paid for our homes. First up, the volatility of the housing market is to blame. First we were up, now we’re down, so is it any wonder so many of us forget where we started from?
The accuracy with which you can recall your house price is also influenced by how long ago you bought the house. If you bought more recently, you’ll be able to remember more accurately.
It seems that no matter how much some Irish people may want to forget what they paid for their houses during the boom, the number is seared into our memory.
The paper also found that better-educated households and those with a higher average income are more able to remember what they paid.
Why does this matter?
Unfortunately, this won’t make a big difference to most people on the ground in Ireland. However, seeing as your house is the most expensive thing most of us will ever buy, plenty of economists and governments use it to help predict consumption and investment behaviours.
The Central Bank research shows that due to recall error, a lot of these indicators could be dealing with dodgy data to start out with.
Do you remember what you paid for your house?