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Getting on and Moving Up the Property Ladder: Real Hedging in the U.S. Housing Market Before and After the Crisis

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  • Damian S. Damianov
  • Diego Escobari

Abstract

Real hedging is the practice of getting onto the property ladder in order to trade up to a larger home in the future. We define the value of the real hedge of home ownership as the difference between the risk premiums of renting and owning and explore how this value depends on local housing price dynamics and household characteristics. Controlling for the potential endogeneity of housing bubble bursts across different U.S metropolitan areas, we find a significantly higher correlation in the appreciation rates across the Standard & Poor's Case–Shiller tiered house price indices in the period after the housing crisis. We conclude that real hedging has become more attractive in the period after the crisis, particularly in markets exhibiting momentum and high volatility in returns.

Suggested Citation

  • Damian S. Damianov & Diego Escobari, 2021. "Getting on and Moving Up the Property Ladder: Real Hedging in the U.S. Housing Market Before and After the Crisis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(4), pages 1201-1237, December.
    • Handle: RePEc:bla:reesec:v:49:y:2021:i:4:p:1201-1237
    DOI: 10.1111/1540-6229.12276
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    Cited by:

    1. Md Shahedur R. Chowdhury & Damian S. Damianov & Diego Escobari, 2024. "Price Exuberance and Contagion across Housing Markets: Evidence from US Metropolitan Areas," The Journal of Real Estate Finance and Economics, Springer, vol. 69(1), pages 132-163, July.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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