House Price Volatility and the Housing Ladder
Chapter in NBER book Insights in the Economics of Aging (2017), David A. Wise, editor (p. 87 - 119)
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.
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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