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House price risk and the hedging benefits of home ownership

Listed author(s):
  • Dröes, Martijn I.
  • Hassink, Wolter H.J.

Using a repeat-sales methodology, this paper finds that estimates of house price risk based on aggregate house price indices substantially underestimate the true size of house price risk. This is the result of the fact that aggregate house price indices average away the idiosyncratic volatility in house prices. Additional results show that the idiosyncratic risk exceeds the hedging benefits of home ownership. These results imply that for many home owners, owning a house may well add more price risk than it hedges away. These findings are based on a detailed dataset of individual housing transactions in the Netherlands.

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File URL: http://www.sciencedirect.com/science/article/pii/S1051137713000168
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Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 22 (2013)
Issue (Month): 2 ()
Pages: 92-99

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Handle: RePEc:eee:jhouse:v:22:y:2013:i:2:p:92-99
DOI: 10.1016/j.jhe.2013.03.002
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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  11. Paciorek, Andrew & Sinai, Todd, 2012. "Does home owning smooth the variability of future housing consumption?," Journal of Urban Economics, Elsevier, vol. 71(2), pages 244-257.
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  14. Karl Case & John Cotter & Stuart Gabriel, 2010. "Housing Risk and Return: Evidence From a Housing Asset-Pricing Model," Working Papers 201005, Geary Institute, University College Dublin.
  15. Harding, John P. & Rosenthal, Stuart S. & Sirmans, C.F., 2007. "Depreciation of housing capital, maintenance, and house price inflation: Estimates from a repeat sales model," Journal of Urban Economics, Elsevier, vol. 61(2), pages 193-217, March.
  16. Lu Han, 2010. "The Effects of Price Risk on Housing Demand: Empirical Evidence from U.S. Markets," Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3889-3928, November.
  17. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2005. "Why Have Housing Prices Gone Up?," American Economic Review, American Economic Association, vol. 95(2), pages 329-333, May.
  18. Han, Lu, 2008. "Hedging house price risk in the presence of lumpy transaction costs," Journal of Urban Economics, Elsevier, vol. 64(2), pages 270-287, September.
  19. 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, 01.
  20. Quigley, John M., 2006. "Real estate portfolio allocation: The European consumers' perspective," Journal of Housing Economics, Elsevier, vol. 15(3), pages 169-188, September.
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