Owner-occupied housing as a hedge against rent risk

Todd Sinai and Nicholas Souleles

No 05-10, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: The conventional wisdom that homeownership is very risky ignores the fact that the alternative, renting, is also risky. Owning a house provides a hedge against fluctuations in housing costs, but in turn introduces asset price risk. In a simple model of tenure choice with endogenous house prices, the authors show that the net risk of owning declines with a household?s expected horizon in its house and with the correlation in housing costs in future locations. Empirically, they find that both house prices, relative to rents, and the probability of homeownership increase with net rent risk

Keywords: Housing; Housing - Prices (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (383)

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Related works:
Journal Article: Owner-Occupied Housing as a Hedge Against Rent Risk (2005)
Working Paper: Owner-Occupied Housing as a Hedge Against Rent Risk (2003)
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