Article:

House Price Dynamics and Excess Risk

Author: Yuming Li, Jing Yang

Start Page: 251
End Page: 274
Volume: 21
Issue Number: 2
Year: 2018
Publication: International Real Estate Review

Abstract:


We examine the relation between risk and returns in the U.S. residential housing market. We find that the risk of house price changes and the magnitude relative to the risk of income changes vary with economic conditions. We measure the excess risk of house price changes by adjusting for the risk of income changes and economic variables associated with the real estate and financial sectors of the economy, and find a significant and positive relation between house price changes and excess risk. We also find that excess risk has significantly adverse effects on the short-run momentum and long-run reversal of house price changes across metro areas, thus implying that excess risk induces price rigidity and helps to explain for the serial correlations in price changes in the U.S. single-family housing market.

Keywords

Cross-Sectional Dispersion, Idiosyncratic Risk, Serial Correlations, House Price Movements

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