Does investment risk affect the housing decisions of families?

Households assume substantial house-price risk when purchasing a home. This article investigates the effect of such risk on families' housing decisions. Using a repeat cross-section of household data from the American Housing Survey spanning a 10-year period and measures of expected return and time-varying risk, I find that families are less likely to own and housing demand is reduced during episodes of relatively high, anticipated house-price volatility. The impact is greater on low- and moderate-income families and first-time homeowners than other groups. The results hold implications for policies designed to assist homeowners in lessening the risk they bear.