Does Home Owning Smooth the Variability of Future Housing Consumption?

48 Pages Posted: 22 Nov 2010 Last revised: 4 Mar 2021

See all articles by Andrew Paciorek

Andrew Paciorek

Board of Governors of the Federal Reserve System

Todd M. Sinai

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2010

Abstract

We show that the hedging benefit of owning a home reduces the variability of housing consumption after a move. When a current home owner's house price covaries positively with housing costs in a future city, changes in the future cost of housing are offset by commensurate changes in wealth before the move. Using Census micro-data, we find that the cross-sectional variation in house values subsequent to a move is lower for home owners who moved between more highly covarying cities. Our preferred estimates imply that an increase in covariance of one standard deviation reduces the variance of subsequent housing consumption by about 11 percent. Households at the top end of the covariance distribution who are likely to have owned large homes before moving get the largest reductions, of up to 40 percent relative to households at the median.

Suggested Citation

Paciorek, Andrew and Sinai, Todd M., Does Home Owning Smooth the Variability of Future Housing Consumption? (November 2010). NBER Working Paper No. w16531, Available at SSRN: https://ssrn.com/abstract=1711671

Andrew Paciorek (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Todd M. Sinai

University of Pennsylvania - The Wharton School ( email )

1465 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States
215-898-5390 (Phone)
215-573-2220 (Fax)

HOME PAGE: http://real.wharton.upenn.edu/~sinai

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
13
Abstract Views
537
PlumX Metrics