Journal Article

The Effects of Price Risk on Housing Demand: Empirical Evidence from U.S. Markets

Lu Han

in The Review of Financial Studies

Published on behalf of The Society for Financial Studies

Volume 23, issue 11, pages 3889-3928
Published in print November 2010 | ISSN: 0893-9454
Published online October 2010 | e-ISSN: 1465-7368 | DOI: https://dx.doi.org/10.1093/rfs/hhq088
The Effects of Price Risk on Housing Demand: Empirical Evidence from U.S. Markets

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  • Multiple or Simultaneous Equation Models; Multiple Variables
  • Household Behaviour and Family Economics
  • Intertemporal Choice and Growth
  • Mobility, Unemployment, and Vacancies
  • Household Analysis

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This article examines how price risk affects housing demand. It identifies two relevant channels: a financial risk effect that reduces demand, and a hedging effect that increases demand since current homes may hedge future housing costs. The latter dominates when hedging incentives are strong, namely when the likelihood of moving up the housing ladder is high and the tendency to move across markets is low. For households with weak hedging incentives, the article finds negative effects of price risk on the timing and size of home purchases, but positive effects for households with strong hedging incentives.

Keywords: C33; D12; D91; J61; R21

Journal Article.  18059 words.  Illustrated.

Subjects: Multiple or Simultaneous Equation Models; Multiple Variables ; Household Behaviour and Family Economics ; Intertemporal Choice and Growth ; Mobility, Unemployment, and Vacancies ; Household Analysis

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