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Does home owning smooth the variability of future housing consumption?

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  • Paciorek, Andrew
  • Sinai, Todd

Abstract

We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner’s house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth before the move. Using Census micro-data, we find that the cross-sectional variation in house values subsequent to a move is lower for home owners who moved between more highly covarying cities. Our preferred estimates imply that an increase in covariance of one standard deviation reduces the variance of subsequent housing consumption by about 11%. Households at the top end of the covariance distribution who are likely to have owned large homes before moving get the largest reductions, of up to 40% relative to households at the median.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 71 (2012)
Issue (Month): 2 ()
Pages: 244-257

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Handle: RePEc:eee:juecon:v:71:y:2012:i:2:p:244-257

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Web page: http://www.elsevier.com/locate/inca/622905

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Keywords: Housing; House price risk; Mobility; Consumption; Volatility;

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References

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Cited by:
  1. Paciorek, Andrew, 2013. "Supply constraints and housing market dynamics," Journal of Urban Economics, Elsevier, vol. 77(C), pages 11-26.
  2. Jonathan Halket & Michael Amior, 2012. "Do Households Use Homeownership To Insure Themselves? Evidence Across U.S. Cities," Economics Discussion Papers 718, University of Essex, Department of Economics.
  3. 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.

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