Perception of House Price Risk and Homeownership / Manuel Adelino, Antoinette Schoar, Felipe Severino.

Format:

Book

Author/Creator:

Adelino, Manuel.

Contributor:

National Bureau of Economic Research.

Schoar, Antoinette.

Severino, Felipe.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25090.

NBER working paper series no. w25090

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

This paper analyzes the importance of household perceptions of house price risk in explaining homeownership choice. While a majority of US households (71%) believes that housing is a "safe" investment, renters are much more likely to perceive housing as risky. Risk perceptions vary across demographic groups, but significant differences persist after controlling for observables, such as income, savings, or location. Current housing decisions and future intentions to buy versus rent are strongly correlated with perceptions of house price risk. Households' exposure to housing risk due to financial constraints, expected mobility or labor income risk affect the decision to buy versus rent but do not mitigate the impact of risk perceptions on housing choices. Finally, we show that all households update their beliefs about the riskiness of housing in response to past (local) house price changes, but renters are much slower to update than owners. Since renters' decisions to buy are especially sensitive to their perception of house price risk, it might explain their delayed entry into home ownership during a house price run-up and even prolong the housing cycle.

Notes:

Print version record

September 2018.