House price risk and the hedging benefits of home ownership

Using a repeat-sales methodology, this paper finds that estimates of house price risk based on aggregate house price indices substantially underestimate the true size of house price risk. This is the result of the fact that aggregate house price indices average away the idiosyncratic volatility in house prices. Additional results show that the idiosyncratic risk exceeds the hedging benefits of home ownership. These results imply that for many home owners, owning a house may well add more price risk than it hedges away. These findings are based on a detailed dataset of individual housing transactions in the Netherlands.