Home ownership decision in personal finance: some empirical evidence Journal Articles uri icon

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abstract

  • Despite being one of the most important decisions a household has to make and extensively covered in personal finance textbooks, there is very little empirical guidance as to whether it pays to own a house. We examine this empirical question for households with different risk tolerance. By including home ownership into the general portfolio analysis of financial assets, we demonstrate clearly the interaction effect between financial assets and home ownership. We also offer a compre- hensive analysis of 20 regional housing markets to determine whether the economic case for home ownership varies across regions. For households that decide to rent instead of owning a house, this study offers evidence on the effectiveness of hedging housing consumption risk with investments in real estate investment trusts.