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Owner-occupied housing as a hedge against rent risk

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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

Suggested Citation

  • Todd M. Sinai & Nicholas S. Souleles, 2005. "Owner-occupied housing as a hedge against rent risk," Working Papers 05-10, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:05-10
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Housing; Housing - Prices;

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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