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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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  1. François Ortalo-Magné & Matteo Iacoviello, "undated". "Hedging Housing Risk in London," Wisconsin-Madison CULER working papers 02-03, University of Wisconsin Center for Urban Land Economic Research.
  2. Goetzmann, William N & Spiegel, Matthew, 1995. "Non-temporal Components of Residential Real Estate Appreciation," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 199-206, February.
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  17. Banks, James & Blundell, Richard & Oldfield, Zoë & Smith, James P., 2010. "House Price Volatility and the Housing Ladder," IZA Discussion Papers 5173, Institute for the Study of Labor (IZA).
  18. Andrew Caplin & Sewin Chan & Charles Freeman & Joseph Tracy, 1997. "Housing Partnerships: A New Approach to a Market at a Crossroads," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262032430.
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  20. 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.
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