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American Economic Journal: Economic Policy: Vol. 5 No. 2 (May 2013)

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Can Owning a Home Hedge the Risk of Moving?

Article Citation

Sinai, Todd, and Nicholas Souleles. 2013. "Can Owning a Home Hedge the Risk of Moving?" American Economic Journal: Economic Policy, 5(2): 282-312.

DOI: 10.1257/pol.5.2.282

Abstract

For households that face a possibility of moving across MSAs, the risk of home owning depends on the covariance of the sale prices of their current houses with the purchase prices of their likely future houses. We find empirically that households tend to move between highly correlated MSAs, significantly increasing the distribution of expected correlations in real house price growth across MSAs, and so raising the "moving-hedge" value of owning. Own/rent decisions are sensitive to this hedging value, with households being more likely to own when their hedging value is greater due to higher expected correlations and likelihoods of moving. JEL (D14, R21, R23, R31)

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Authors

Sinai, Todd (U PA)
Souleles, Nicholas (U PA)

JEL Classifications

D14: Personal Finance
R21: Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
R23: Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
R31: Housing Supply and Markets

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