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Do Households Use Homeownership To Insure Themselves? Evidence across US Cities

  • Michael Amior

    (UCL)

  • Jonathan Halket

    (UCL)

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    Are households more likely to be homeowners when “housing risk” is higher? We show that homeownership rates and loan-to-value (LTV) ratios at the city level are strongly negatively correlated with house price levels and the variance of house price growth rates in the city. But both price levels and the variance of their growth rates are themselves correlated with the relative value of land in the city, even when land value is instrumented for using topographic measures. We disentangle the contributions of high prices from high variances by building a life-cycle model of homeownership choices. The model is able to explain much of the cross-city dispersion in homeownership and LTV. We find that higher price levels explain the lower homeownership while higher risk explains the lower LTV in high land value cities. The variation in LTV with risk highlights the importance of including other means of insurance in models of homeownership.

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    Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 276.

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    Date of creation: 2011
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    Handle: RePEc:red:sed011:276
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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