Evidence on the Determinants and Variation of Idiosyncratic Risk in Housing Markets

Lydia Cheung, Jaqueson Galimberti and Philip Vermeulen

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: Using around one million repeat sales, we show that idiosyncratic risk in real house price appreciation varies considerably across houses. We find that idiosyncratic risk is timevarying, depends negatively on the initial house price, varies across locations, and reduces as the holding period of the house increases. We find that risk is priced in expected returns across all these dimensions, except location. The variation in idiosyncratic risk by location can be explained by variations in market thinness and information quality across markets. Risk is related to macroeconomic credit conditions and financial regulation. The higher risk for cheaper houses is associated with valuation uncertainty and financial vulnerability of homeowners. The risk-return relationship across initial house prices depends on the current state of the market. During busts of the housing cycle, the distribution of house prices widens and cheaper houses depreciate faster than more expensive houses, leading to an inverted riskreturn relationship.

Keywords: Idiosyncratic risk; house prices; housing markets (search for similar items in EconPapers)
JEL-codes: G1 R1 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2023-09-01
New Economics Papers: this item is included in nep-rmg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://repec.canterbury.ac.nz/cbt/econwp/2313.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:23/13

Access Statistics for this paper

More papers in Working Papers in Economics from University of Canterbury, Department of Economics and Finance Private Bag 4800, Christchurch, New Zealand. Contact information at EDIRC.
Bibliographic data for series maintained by Albert Yee ().