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House price risk and the hedging benefits of home ownership

Author

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  • Dröes, Martijn I.
  • Hassink, Wolter H.J.

Abstract

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.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jhouse:v:22:y:2013:i:2:p:92-99
    DOI: 10.1016/j.jhe.2013.03.002
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    References listed on IDEAS

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    Cited by:

    1. Stefan Groot & Arjan Lejour, 2017. "Tax arbitrage incentives for mortgage prepayment behavior: Evidence from Dutch micro data," CPB Discussion Paper 350, CPB Netherlands Bureau for Economic Policy Analysis.
    2. 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.

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