House Price Volatility and the Housing Ladder

James Banks, Richard Blundell, Zoë Oldfield, James P. Smith

Chapter in NBER book Insights in the Economics of Aging (2017), David A. Wise, editor (p. 87 - 119)
Conference held April 30-May 2, 2015
Published in March 2017 by University of Chicago Press
© 2017 by the National Bureau of Economic Research
in NBER Book Series - The Economics of Aging

This paper investigates the effects of spatial housing price risk on housing choices over the first half of the life-cycle. Housing price risk can be substantial but, unlike other risky assets which people can avoid, most people want to eventually own their home thereby creating an insurance demand early in life. Our contribution focuses on the importance of home ownership as a hedge against future house price risk for individuals that plan to move up the housing ladder. We use a simple theoretical model to show that people living in places with higher housing price risk should own their first home at a younger age, live in larger homes, and be less likely to refinance. These predictions are shown to hold using panel data from the United States and United Kingdom.

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This chapter first appeared as NBER working paper w21255, House Price Volatility and the Housing Ladder, James Banks, Richard Blundell, Zoé Oldfield, James P. Smith
Commentary on this chapter: Comment, Steven F. Venti
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