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

Review of Financial Studies, Forthcoming

62 Pages Posted: 12 Jan 2009 Last revised: 9 May 2015

See all articles by Lu Han

Lu Han

University of Toronto - Rotman School of Management

Date Written: January 9, 2010

Abstract

This paper 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 paper finds negative effects of price risk on the timing and size of home purchases, but positive effects for households with strong hedging incentives.

Keywords: Housing demand; Price uncertainty; Hedge; Self-insurance; Mobility

JEL Classification: C33, D12, R0

Suggested Citation

Han, Lu, The Effects of Price Uncertainty on Housing Demand: Empirical Evidence from U.S. Markets (January 9, 2010). Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1325546

Lu Han (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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