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Can Owning a Home Hedge the Risk of Moving?

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Author Info

  • Todd Sinai
  • Nicholas Souleles

Abstract

For households that face a possibility of moving across MSAs, the risk of home owning depends on the covariance of the sale prices of their current houses with the purchase prices of their likely future houses. We find empirically that households tend to move between highly correlated MSAs, significantly increasing the distribution of expected correlations in real house price growth across MSAs, and so raising the "moving-hedge" value of owning. Own/rent decisions are sensitive to this hedging value, with households being more likely to own when their hedging value is greater due to higher expected correlations and likelihoods of moving. JEL (D14, R21, R23, R31)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.5.2.282
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 5 (2013)
Issue (Month): 2 (May)
Pages: 282-312

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Handle: RePEc:aea:aejpol:v:5:y:2013:i:2:p:282-312

Note: DOI: 10.1257/pol.5.2.282
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Houses are a poor way to share risk
    by Economic Logician in Economic Logic on 2009-11-02 15:26:00
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Cited by:
  1. Sejeong Ha & Christian A. L. Hilber, 2013. "Do Long Distance Moves Discourage Homeownership? Evidence from England," SERC Discussion Papers 0141, Spatial Economics Research Centre, LSE.
  2. Christian A. L. Hilber & Wouter Vermeulen, 2013. "The impact of supply constraints on house prices in England," Working Papers 2013/28, Institut d'Economia de Barcelona (IEB).
  3. Tatiana Kirsanova & Jack Rogers, 2013. "Fixed versus Variable Rate Debt Contracts and Optimal Monetary Policy," Discussion Papers 1306, Exeter University, Department of Economics.
  4. Ortalo-Magné, François & Prat, Andrea, 2011. "On the Political Economy of Urban Growth: Homeownership versus Affordability," CEPR Discussion Papers 8243, C.E.P.R. Discussion Papers.
  5. Dröes, Martijn I. & Hassink, Wolter H.J., 2013. "House price risk and the hedging benefits of home ownership," Journal of Housing Economics, Elsevier, vol. 22(2), pages 92-99.
  6. McDuff, DeForest, 2011. "Demand substitution across US cities: Observable similarity and home price correlation," Journal of Urban Economics, Elsevier, vol. 70(1), pages 1-14, July.
  7. M.I. Dröes & H. Garretsen & W.J.J. Manshanden, 2012. "The Diversification Benefits of Free Trade in House Value," Working Papers 12-03, Utrecht School of Economics.
  8. Jordan Rappaport, 2010. "The effectiveness of homeownership in building household wealth," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 35-65.

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  1. Economic Logic blog

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