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House Prices and Risk Sharing

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  • Sørensen, Bent E
  • Luengo-Prado, Maria Jose
  • Hryshko, Dmytro

Abstract

Using data from the Panel Study of Income Dynamics, we show that homeowners are able to maintain a high level of consumption following job loss (or disability) in periods of rising local house prices while the consumption drop for homeowners who lose their job in times of lower house prices is substantial. The results are consistent with homeowners being able to access wealth gains when housing appreciates as witnessed by their ability to smooth consumption more than renters. We calibrate and simulate a model of endogenous homeownership and consumption which is able to reproduce the patterns in the data quite well.

Suggested Citation

  • Sørensen, Bent E & Luengo-Prado, Maria Jose & Hryshko, Dmytro, 2010. "House Prices and Risk Sharing," CEPR Discussion Papers 7894, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7894
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    More about this item

    Keywords

    Consumption smoothing; Psid; Regional house prices;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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