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The Effects of Price Risk on Housing Demand: Empirical Evidence from U.S. Markets

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  • Lu Han

Abstract

This article examines how price risk affects housing demand. It identifies two relevant channels: a financial risk effect that reduces demand, and a hedging effect that increases demand since current homes may hedge future housing costs. The latter dominates when hedging incentives are strong, namely when the likelihood of moving up the housing ladder is high and the tendency to move across markets is low. For households with weak hedging incentives, the article finds negative effects of price risk on the timing and size of home purchases, but positive effects for households with strong hedging incentives. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:rfinst:v:23:y:2010:i:11:p:3889-3928
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    File URL: http://hdl.handle.net/10.1093/rfs/hhq088
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    Citations

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    Cited by:

    1. Peter Chinloy & William D. Larson, 2017. "The Daily Microstructure of the Housing Market," FHFA Staff Working Papers 17-01, Federal Housing Finance Agency.
    2. Tabner, Isaac T., 2016. "Buying versus renting – Determinants of the net present value of home ownership for individual households," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 233-246.
    3. 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.
    4. Lynn Wu & Erik Brynjolfsson, 2015. "The Future of Prediction: How Google Searches Foreshadow Housing Prices and Sales," NBER Chapters,in: Economic Analysis of the Digital Economy, pages 89-118 National Bureau of Economic Research, Inc.
    5. repec:esx:essedp:718 is not listed on IDEAS
    6. 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.
    7. Amior, Michael & Halket, Jonathan R, 2012. "Do Households Use Homeownership To Insure Themselves? Evidence Across U.S. Cities," Economics Discussion Papers 8963, University of Essex, Department of Economics.
    8. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, Elsevier.
    9. Roine Vestman, 2013. "Limited Stock Market Participation Among Renters and Home Owners," 2013 Meeting Papers 549, Society for Economic Dynamics.
    10. Dag Einar Sommervoll & Jan de Haan, 2014. "Homes and Castles: Should We Care about Idiosyncratic Risk?," Land Economics, University of Wisconsin Press, vol. 90(4), pages 700-716.
    11. Manish Gupta, 2012. "What factors affect hedging incentives of housing demand?," ERES eres2012_118, European Real Estate Society (ERES).
    12. repec:bla:ecorec:v:92:y:2016:i:299:p:606-630 is not listed on IDEAS
    13. Robert I. Webb & Jian Yang & Jin Zhang, 2016. "Price Jump Risk in the US Housing Market," The Journal of Real Estate Finance and Economics, Springer, vol. 53(1), pages 29-49, July.

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