Idiosyncratic Risk in Housing Markets

68 Pages Posted: 3 Jul 2017 Last revised: 10 Jan 2019

Date Written: June 30, 2017


This paper studies idiosyncratic risk at the level of individual house resales. It is commonly assumed that the idiosyncratic price component follows a random walk. I show that housing market data reject this model, and that idiosyncratic risk is instead close to constant for holding periods up to 10 years. Moreover, using an instrument for ZIP Code-level shocks to mortgage credit, I show that a contraction in local credit availability increases idiosyncratic risk. Finally, I show that accounting for the idiosyncratic component substantially flattens the term structure of total housing risk. The term structure is steeper in lower income ZIP Codes.

Keywords: Idiosyncratic Risk, Housing, Market Liquidity, Portfolio Decisions

JEL Classification: G11, G12, G14

Suggested Citation

Giacoletti, Marco, Idiosyncratic Risk in Housing Markets (June 30, 2017). Available at SSRN: or

Marco Giacoletti (Contact Author)

Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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