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Do Households Use Homeownership To Insure Themselves? Evidence across US Cities

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  • Michael Amior

    (UCL)

  • Jonathan Halket

    (UCL)

Abstract

Are households more likely to be homeowners when “housing risk” is higher? We show that homeownership rates and loan-to-value (LTV) ratios at the city level are strongly negatively correlated with house price levels and the variance of house price growth rates in the city. But both price levels and the variance of their growth rates are themselves correlated with the relative value of land in the city, even when land value is instrumented for using topographic measures. We disentangle the contributions of high prices from high variances by building a life-cycle model of homeownership choices. The model is able to explain much of the cross-city dispersion in homeownership and LTV. We find that higher price levels explain the lower homeownership while higher risk explains the lower LTV in high land value cities. The variation in LTV with risk highlights the importance of including other means of insurance in models of homeownership.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 276.

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Date of creation: 2011
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Handle: RePEc:red:sed011:276

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References

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Cited by:
  1. Jonathan Halket, 2009. "Home Ownership, Savings and Mobility Over The Life Cycle," 2009 Meeting Papers 295, Society for Economic Dynamics.
  2. 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.
  3. Mika Kortelainen & Tuukka Saarimaa, 2012. "Do homeowners benefit urban neighborhoods? Evidence from housing prices," Working Papers 36, Government Institute for Economic Research Finland (VATT).
  4. Jonathan Halket & Matteo Pignatti, 2012. "Housing tenure choices with private information," Economics Discussion Papers 717, University of Essex, Department of Economics.

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