Geographic Heterogeneity in Housing Market Risk and Portfolio Choice

Tong-yob Nam ()
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Tong-yob Nam: U.S. Department of the Treasury

The Journal of Real Estate Finance and Economics, 2021, vol. 62, issue 4, No 2, 508-547

Abstract: Abstract The U.S. housing market is heterogeneous in that house price dynamics vary greatly across regions. Depending on the location of the main residence, households are exposed to completely different housing market risk. This paper examines how geographic heterogeneity in housing market risk affects household portfolio allocations. Housing supply elasticity largely explains variation in housing market risk across regions. Where housing supply elasticity is low, households face higher housing market risk since house price growth rates are more volatile and more positively correlated with stock returns and labor income growth rates. Using the restricted version of the Health and Retirement Study (HRS) data with detailed geographic information, I find that households in areas with low housing supply elasticity tend to hold less stock in their portfolios. This tendency, however, weakens after retirement when labor income risk disappears.

Keywords: Geographic heterogeneity; Portfolio choice; Housing market risk; Labor income risk; Retirement (search for similar items in EconPapers)
JEL-codes: D14 G11 R12 R20 R21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11146-020-09762-9

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