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House Price Volatility and the Housing Ladder

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  • James Banks
  • Richard Blundell
  • Zoe Oldfield
  • James P. Smith

Abstract

This paper investigates the effects of housing price risk on housing choices over the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, the fact that most people will eventually own their home creates an insurance demand for housing assets early in life. The authors' contribution is to focus on the importance of home ownership and housing wealth as a hedge against future house price risk for individuals moving up the ladderÑpeople living in places with higher housing price risk should own their first home at a younger age, should live in larger homes, and should be less likely to refinance. These predictions are tested and shown to hold using panel data from the United States and Great Britain.

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Bibliographic Info

Paper provided by RAND Corporation Publications Department in its series Working Papers with number 786.

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Length: 51 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:ran:wpaper:786

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  1. Steven F. Venti & David A. Wise, 2001. "Aging and Housing Equity: Another Look," NBER Working Papers 8608, National Bureau of Economic Research, Inc.
  2. François Ortalo-Magné & Antonio Merlo, 2002. "Bargaining over Residential Real Estate: Evidence from England," Wisconsin-Madison CULER working papers 02-02, University of Wisconsin Center for Urban Land Economic Research.
  3. John Y. Campbell & Joao F. Cocco, 2004. "How do house prices affect consumption? Evidence from micro data," 2004 Meeting Papers 304, Society for Economic Dynamics.
  4. Joao F. Cocco, 2005. "Portfolio Choice in the Presence of Housing," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 535-567.
  5. Brueckner, Jan K, 1997. "Consumption and Investment Motives and the Portfolio Choices of Homeowners," The Journal of Real Estate Finance and Economics, Springer, vol. 15(2), pages 159-80, October.
  6. Ortalo-Magné, François & Rady, Sven, 2001. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints," CEPR Discussion Papers 3015, C.E.P.R. Discussion Papers.
  7. Louise Sheiner & David N. Weil, 1992. "The Housing Wealth of the Aged," NBER Working Papers 4115, National Bureau of Economic Research, Inc.
  8. Engelhardt, Gary V., 1996. "House prices and home owner saving behavior," Regional Science and Urban Economics, Elsevier, vol. 26(3-4), pages 313-336, June.
  9. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  10. Todd Sinai & Nicholas S. Souleles, 2003. "Owner-Occupied Housing as a Hedge Against Rent Risk," NBER Working Papers 9462, National Bureau of Economic Research, Inc.
  11. Fran�ois Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 459-485.
  12. Ermisch, John & Pevalin, David J., 2004. "Early childbearing and housing choices," Journal of Housing Economics, Elsevier, vol. 13(3), pages 170-194, September.
  13. Bhatia, Kul B, 1987. "Real Estate Assets and Consumer Spending," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 437-44, May.
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Cited by:
  1. Päivi Kankaanranta, 2006. "Consumption Over the Life Cycle: A Selected Literature Review," Discussion Papers 7, Aboa Centre for Economics.
  2. Jan Rouwendal, 2009. "Housing Wealth and Household Portfolios in an Ageing Society," De Economist, Springer, vol. 157(1), pages 1-48, March.
  3. Jonathan Halket, 2009. "Home Ownership, Savings and Mobility Over The Life Cycle," 2009 Meeting Papers 295, Society for Economic Dynamics.
  4. Ebner, André, 2010. "A micro view on home equity withdrawal and its determinants. Evidence from Dutch households," Discussion Papers in Economics 11309, University of Munich, Department of Economics.
  5. Jonathan Halket & Santhanagopalan Vasudev, 2013. "Online Appendix to "Saving Up or Settling Down: Home Ownership over the Life Cycle," Technical Appendices 12-89, Review of Economic Dynamics.
  6. Andrew Benito, 2007. "Housing equity as a buffer: evidence from UK households," Bank of England working papers 324, Bank of England.
  7. 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.
  8. Laura Blow & Lars Nesheim, 2009. "Dynamic housing expenditures and household welfare," CeMMAP working papers CWP04/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  9. Philippe Bracke, 2013. "House prices and rents: micro evidence from a matched dataset in Central London," LSE Research Online Documents on Economics 49723, London School of Economics and Political Science, LSE Library.
  10. Bover, Olympia, 2010. "Housing purchases and the dynamics of housing wealth," CEPR Discussion Papers 8128, C.E.P.R. Discussion Papers.
  11. Philippe Bracke, 2013. "House Prices and Rents: Micro Evidence from a Matched Dataset in Central London_x0003_," ERSA conference papers ersa13p112, European Regional Science Association.
  12. Maria Chiuri & Tullio Jappelli, 2010. "Do the elderly reduce housing equity? An international comparison," Journal of Population Economics, Springer, vol. 23(2), pages 643-663, March.
  13. João Ejarque & Søren Leth-Petersen, 2008. "Consumption and Savings of First Time House Owners: How Do They Deal with Adverse Income Shocks?," CAM Working Papers 2008-08, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
  14. M. Deidda, 2013. "Economic hardship, housing cost burden and tenure status: evidence from EU-SILC," Working Paper CRENoS 201323, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.
  15. 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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