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Can Owning a Home Hedge the Risk of Moving?

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  • 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)

Suggested Citation

  • Todd Sinai & Nicholas Souleles, 2013. "Can Owning a Home Hedge the Risk of Moving?," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 282-312, May.
  • 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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. Michael F. Lovenheim, 2011. "The Effect of Liquid Housing Wealth on College Enrollment," Journal of Labor Economics, University of Chicago Press, vol. 29(4), pages 741-771.
    4. 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.
    5. Robert J. Shiller, 2014. "Why Is Housing Finance Still Stuck in Such a Primitive Stage?," American Economic Review, American Economic Association, pages 73-76.
    6. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, Elsevier.
    7. Fran?ois Ortalo-Magn? & Andrea Prat, 2014. "On the Political Economy of Urban Growth: Homeownership versus Affordability," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 154-181, February.
    8. Christian A. L. Hilber & Wouter Vermeulen, 2016. "The Impact of Supply Constraints on House Prices in England," Economic Journal, Royal Economic Society, vol. 126(591), pages 358-405, March.
    9. 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.
    10. François Ortalo-Magné & Andrea Prat, 2016. "Spatial Asset Pricing: A First Step," Economica, London School of Economics and Political Science, vol. 83(329), pages 130-171, January.
    11. 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.
    12. Parente Paulo M.D.C. & Santos Silva João M.C., 2016. "Quantile Regression with Clustered Data," Journal of Econometric Methods, De Gruyter, pages 1-15.
    13. Steven F. Venti, 2015. "Comment on "House Price Volatility and the Housing Ladder"," NBER Chapters,in: Insights in the Economics of Aging, pages 119-125 National Bureau of Economic Research, Inc.
    14. Donald Haurin & Chao Ma & Stephanie Moulton & Maximilian Schmeiser & Jason Seligman & Wei Shi, 2016. "Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 392-417, October.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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