Full Citation
Title: Do Households Use Homeownership To Insure Themselves? Evidence Across U.S. Cities
Citation Type: Working Paper
Publication Year: 2012
ISBN:
ISSN:
DOI:
NSFID:
PMCID:
PMID:
Abstract: Are households more likely to be homeowners when "housing risk" is higher? We show that homeownership rates and loan-to-value (LTV) ratios at the city level are strongly negatively correlated with local house price volatility. However, causal inference is confounded by house price levels, which are systematically correlated with housing risk in an intuitive way: in cities where the land value is larger relative to the local cost of structures, house prices are higher and more volatile. We disentangle the contributions of high price levels from high volatilities by building a life-cycle model of homeownership choices. The model is able to explain much of the cross-city dispersion in homeownership and LTV. We find that higher price levels explain the lower homeownership, while higher risk explains the lower LTV in high land value cities. The relationship between LTV and risk highlights the importance of including other means of incomplete insurance in models of homeownership. Finally, we use the model to show why regression-based inferences about the effect of risk on homeownership are biased.
Url: http://repository.essex.ac.uk/8963/1/dp718.pdf
User Submitted?: No
Authors: Amior, Michael; Halket, Jonathan
Series Title: Department of Economics, University of Essex, Discussion Paper Series
Publication Number: 718
Institution: University of Essex
Pages:
Publisher Location:
Data Collections: IPUMS USA
Topics: Housing and Segregation
Countries: