Perception of house price risk and homeownership
Antoinette Schoar, Professor of Entrepreneurship, MIT Sloan School of Management
Please join us for our upcoming finance seminar. Antoinette Schoar, Michael M. Koerner (1949) Professor of Entrepreneurship, will be presenting.
University of Oxford staff and students are welcome to attend if seats are available. If you would like to attend please contact Marie van Boekel to check availability.
Using a new, nationally representative housing survey from Fannie Mae, we document four new facts about how households form expectations about house price risk. First the majority of US households (71%) believes that housing is a “safe” investment. In comparison, only 18% believe that stocks are a safe investment, and 55% for bonds. Second, perceptions about the riskiness of housing as an investment are strongly correlated with demographic characteristics of households. Renters in particular on average rate housing as much riskier than owners even conditional on their geographic location, income, level of savings and future job prospects. Third, the share of households who perceive housing as risky co-moves strongly with recent local house price changes, i.e. beliefs about house price risk are adaptive, parallel to what has previously been shown for house price expectations. Again, we find an asymmetry for renters, who are much slower to update about the riskiness of housing in response to increased house prices. Finally, perceptions about house price risk affect the future intentions of households. People who believe that housing is risky are much more likely to state they would prefer to rent instead of buying in their next move.