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Perception of House Price Risk and Homeownership

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  • Adelino, Manuel
  • Schoar, Antoinette S
  • Severino, Felipe

Abstract

This paper analyzes the importance of household perceptions of house price risk in explaining homeownership choice. While a majority of US households (71%) believes that housing is a "safe" investment, renters are much more likely to perceive housing as risky. Risk perceptions vary across demographic groups, but significant differences persist after controlling for observables, such as income, savings, or location. Current housing decisions and future intentions to buy versus rent are strongly correlated with perceptions of house price risk. Households' exposure to housing risk due to financial constraints, expected mobility or labor income risk affect the decision to buy versus rent but do not mitigate the impact of risk perceptions on housing choices. Finally, we show that all households update their beliefs about the riskiness of housing in response to past (local) house price changes, but renters are much slower to update than owners. Since renters' decisions to buy are especially sensitive to their perception of house price risk, it might explain their delayed entry into home ownership during a house price run-up and even prolong the housing cycle.

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  • Adelino, Manuel & Schoar, Antoinette S & Severino, Felipe, 2018. "Perception of House Price Risk and Homeownership," CEPR Discussion Papers 13195, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13195
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    Cited by:

    1. Joseph Briggs & Christopher Tonetti, 2019. "Risky Insurance: Insurance Portfolio Choice with Incomplete Markets," 2019 Meeting Papers 1388, Society for Economic Dynamics.
    2. Rowan Arundel & Richard Ronald, 2021. "The false promise of homeownership: Homeowner societies in an era of declining access and rising inequality," Urban Studies, Urban Studies Journal Limited, vol. 58(6), pages 1120-1140, May.
    3. Han, Bing & Han, Lu & Zhou, Zhengyi, 2020. "Housing Market and Entrepreneurship: Micro Evidence from China," MPRA Paper 102597, University Library of Munich, Germany, revised 17 Aug 2020.
    4. Kindermann, Fabian & Le Blanc, Julia & Piazzesi, Monika & Schneider, Martin, 2021. "Learning about Housing Cost: Survey Evidence from the German House Price Boom," VfS Annual Conference 2021 (Virtual Conference): Climate Economics 242386, Verein für Socialpolitik / German Economic Association.
    5. Ben-David, Itzhak & Fermand, Elyas & Kuhnen, Camelia M. & Li, Geng, 2018. "Expectations Uncertainty and Household Economic Behavior," Working Paper Series 2018-25, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Benetton, Matteo & Bracke, Philippe & Cocco, João F & Garbarino, Nicola, 2019. "Housing consumption and investment:evidence from shared equity mortgages," Bank of England working papers 790, Bank of England.
    7. Francesco D’Acunto & Ulrike Malmendier & Juan Ospina & Michael Weber, 2019. "Exposure to Daily Price Changes and Inflation Expectations," NBER Working Papers 26237, National Bureau of Economic Research, Inc.
    8. Matteo Benetton & Philippe Bracke & João F Cocco & Nicola Garbarinoifo, 2022. "Housing Consumption and Investment: Evidence from Shared Equity Mortgages [The anatomy of the transmission of macroprudential policies]," Review of Financial Studies, Society for Financial Studies, vol. 35(8), pages 3525-3573.
    9. Grundl, Serafin & Kim, You Suk, 2021. "The marginal effect of government mortgage guarantees on homeownership," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 75-89.
    10. Makridis, Christos A., 2022. "The social transmission of economic sentiment on consumption," European Economic Review, Elsevier, vol. 148(C).

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