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Can Owning a Home Hedge the Risk of Moving?

  • Todd Sinai
  • Nicholas Souleles

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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File URL: http://www.aeaweb.org/aej/pol/data/2011-0096_data.zip
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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
Contact details of provider: Web page: https://www.aeaweb.org/aej-policy
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  1. John Y. Campbell & João F. Cocco, 2005. "How Do House Prices Affect Consumption? Evidence From Micro Data," NBER Working Papers 11534, National Bureau of Economic Research, Inc.
  2. Case, Karl E. & Quigley, John M. & Shiller, Robert J., 2012. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Department of Economics, Working Paper Series qt6px1d1sc, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Chan, Sewin, 2001. "Spatial Lock-in: Do Falling House Prices Constrain Residential Mobility?," Journal of Urban Economics, Elsevier, vol. 49(3), pages 567-586, May.
  4. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
  5. Davidoff, Thomas, 2006. "Labor income, housing prices, and homeownership," Journal of Urban Economics, Elsevier, vol. 59(2), pages 209-235, March.
  6. Cunningham, Christopher R. & Engelhardt, Gary V., 2008. "Housing capital-gains taxation and homeowner mobility: Evidence from the Taxpayer Relief Act of 1997," Journal of Urban Economics, Elsevier, vol. 63(3), pages 803-815, May.
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