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Does Home Owning Smooth the Variability of Future Housing Consumption?

  • Andrew Paciorek
  • Todd M. Sinai

We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner's house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth before the move. Using Census micro-data, we find that the cross-sectional variation in house values subsequent to a move is lower for home owners who moved between more highly covarying cities. Our preferred estimates imply that an increase in covariance of one standard deviation reduces the variance of subsequent housing consumption by about 11 percent. Households at the top end of the covariance distribution who are likely to have owned large homes before moving get the largest reductions, of up to 40 percent relative to households at the median.

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File URL: http://www.nber.org/papers/w16531.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16531.

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Date of creation: Nov 2010
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Publication status: published as 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.
Handle: RePEc:nbr:nberwo:16531
Note: AP EFG PE
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