Evidence on the determinants and variation of idiosyncratic risk in housing markets – Report

This paper shows that housing idiosyncratic risk is time-varying, depends negatively on the house price, varies across locations, and decreases with the holding period. These systematic movements can be associated with information quality and offsetting factors in credit supply. While higher interest rates are associated with reduced idiosyncratic pricing, tighter deposit requirements are associated with higher risk. Idiosyncratic risk is positively associated with excess returns only through risk differences across house prices and holding periods, and not across time and regions.